The housing sector is a vital contributor to Pakistan’s economy, yet its disorganization creates uncertainty. This study aimed to analyze risks and devise strategies for small-to-medium-sized construction firms and builders. Risk factors were identified through literature review and depicted in a fishbone diagram. Semi-structured interviews with three industry experts validated these factors, based on consensus mechanism. A questionnaire survey, targeting companies recognized by the Pakistan Engineering Council and Association of Builders and Developers (categories C2 to C6) in Karachi, garnered a 42% response rate from 70 out of 160 potential respondents. Principal component analysis condensed factors into components, informing structural equation models testing the relationship between housing sector uncertainty and STEEP (social, technical, environmental, economic, political) risk factors. Eight key risk factors emerged, notably social and environmental concerns. Policy solutions such as labor certifications, anti-corruption measures, streamlined operations, and a real estate regulatory authority were recommended. Technical solutions included enhanced communication, awareness, and training for effective risk management. This research underscores the sector’s challenges and offers insights crucial for policy makers and industry stakeholders aiming to stabilize and grow Pakistan’s housing sector.