Policies aim to formalise housing and improve quality of life in Papua New Guinea

While some debate remains about what constitutes the middle class, largely because the average incomes and standards of living vary considerably in different parts of the world, experts are in agreement on some basic characteristics: in general, the middle class has more disposable income than the poor, which is defined by the World Bank as those living on less than a $1.90 a day. In most developing countries, the rural middle class are typically local entrepreneurs, rather than farmers. Comparatively, a person living in an urban area is considered middle class based on their having a steady and reasonably well-paying job. People working in private and public offices in Port Moresby would therefore constitute the middle class. While there may be entrepreneurs among the middle class in Papua New Guinea, those who run small street-side corner stores are considered relatively poor.

As a whole, PNG is categorised as a lower-middle-income country. In this context, households that have a daily per capita expenditure valued at purchasing power parity of between $2 and $4 may be considered middle class. That would mean that approximately 42-69% of the population is middle class, with this metric putting PNG on a par with more developed economies, such as Mexico. Nevertheless, the middle class in PNG is still very poor by developed country standards, and investors should take into account the purchasing power of Papua New Guineans before investing in a business proposition.

Lay of the Land 

Private developers have thus far focused mostly on constructing accommodation for expatriates and the wealthy; however, these groups constitute only a fraction of the market. The number of informal settlements is rising, and squatter camps can be found just beyond Port Moresby in places that, until recently, were empty or forested plots of land. Though the people living in these informal settlements may be described as middle class, they are unable to live in formal houses because land is scarce and housing is too expensive. The latest population census was conducted by the government in 2010 and found that there were 20 planned settlements and 79 unplanned settlements around Port Moresby. Of these, 44 settlements were located on state land, while 37 were built on customary land. Unofficial estimates report there may be up to 1m residents living in the capital as of 2018, while the number of informal settlements around the city could be as high as 100.

Policies & Price Pressures 

As urbanisation takes hold, the need for housing in cities such as Port Moresby and Lae grows increasingly urgent, prompting the government to enact policy interventions. For example, the First Home Ownership Scheme (FHOS) allows Papua New Guineans to unlock their superannuation or pension funds in order to help them purchase property. In return, banks such as Bank South Pacific offer salaried individuals long-term mortgages of up to 40 years at low fixed interest rates.

However, such schemes are of little help to those engaged in the informal economy, which is estimated to employ around 2.5m people. In 2002, 5.6% of the working age population was engaged in the formal economy, according to the 2018 country report on PNG by the Bertelsmann Stiftung’s Transformation Index, who added that this figure was unlikely to have changed significantly. Moreover, a 2017 paper published by the National Research Institute (NRI) found that households spending more than 30% of their income on housing cannot service their mortgage. According to the report, it would take the average low-income earner in Port Moresby 60 years to repay the loan from the FHOS for a house in the lowest price range, which is PGK300,000 ($91,000) or below. In the Waigani suburb, which is a highly sought-after area in Port Moresby, the going rate for a plot of land is PGK2000 ($607) per sq metre, while in other suburbs it may be half as much. That puts homeownership in urban areas out of reach for not only most citizens, but also expatriates. In terms of rental prices, a wellequipped, three-bedroom apartment in the central business district of the capital can cost between PGK3000 ($910) and PGK5000 ($1520) per week, which are comparable to prices in Singapore.

A more recent initiative introduced by the government is the National Capital District Settlement to Suburb Programme, which was launched by Powes Parkop, governor of the district, at the end of July 2018. The programme aims to ensure that all land currently squatted or settled on will be properly identified and allocated to families living there. The objective is to ensure residents are given formal titles for land they are living on, thus converting informal settlements into formal housing. Once this process is complete, the government can plan for the installation of all essential public utilities, including proper road networks, and water and electricity supply. “Currently, about 20-25% of water in Port Moresby is channelled to informal settlements via illegal constructions,” Raka Taviri Jr, managing director at Water PNG, told OBG. If carried out according to plan, the Settlement to Suburb Programme will increase the standard and quality of life for residents living in Port Moresby.

Affordable Housing Deficit 

The need for quality and affordable housing for the growing middle class remains. Industry experts say that there may be a sizeable segment of the market that can afford a traditional high-set house in Port Moresby with a price tag of PGK300,000-400,000 ($91,000-121,000). According to the “PNG Annual Progress Report 2013” by the UN Development Programme, 16% of urban dwellers and 41% of rural inhabitants lived below the poverty line. The World Bank estimates per capita GNI at around $2530 in 2018, and by 2030 the population in major cities and towns is expected to hit 2m. If this trend continues unabated, the problem of affordable housing in Port Moresby could become even more acute. Other major towns that may face a similar scenario are Madang, Mount Hagen and Lae.

There are two broad strategies that could address this challenge: securing land to accommodate urban growth and encouraging people to move out of settlements by providing affordable urban housing. One-third of the urban population currently live in settlements, and the government’s target is to reduce that figure to 15% by 2030. Achieving that goal will require collaboration between the authorities and customary landowners in order to double the available land for urban housing and development. Furthermore, opening the real estate market to more competition and developing secure land titles will help unlock more private sector investment.

Looking Ahead 

Given the comparatively poor standard of living in PNG, the middle class is becoming increasingly frustrated. Many no longer feel that they are enjoying the benefits from the country’s vast natural resources. While some of the population are feeling pessimistic, there is reason for hope, signalled by efforts undertaken by the government. For example, in 2005 Parkop introduced Yumi Lukautim Mosbi, or Let’s Look After Moresby, an urban renewal project aimed at boosting living conditions in the capital by focusing on youth crime prevention and urban safety. More recently, the government of the National Capital District launched the Amazing Port Moresby campaign in November 2018. At the federal level, Prime Minister James Marape has promised to elevate the standard of living for all in PNG, the success of which would require addressing the needs of the middle class.

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The Report: Papua New Guinea 2019

Construction & Real Estate chapter from The Report: Papua New Guinea 2019

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