From hedonic attributes to fundamentals: assessing the macroeconomic environment of housing in Ghana

Abstract

Purpose The literature on the nexus between economic fundamentals and the housing market is increasing in advanced economies. However, the same cannot be said for developing economies, especially in sub-Saharan Africa (SSA), where property data presents a challenge. This study, therefore, aims to examine the macroeconomic environment of house prices in Ghana. Design/methodology/approach Drawing on the macroeconomic nuances in the Ghanaian housing market, the authors applied the autoregressive distributed lag (ARDL) model to a quarterly data set from 2006Q1 to 2020Q1. Findings The findings suggest that fundamentals are cointegrated with house prices, with a significant effect in both the long and short term. The adoption of inflation targeting and adjustment in the policy rate by the Bank of Ghana increases house prices. Moreover, the authors observed that income plays a critical role in the housing market, whilst population aged 15–64 showed an inverse relationship with prices. Any disequilibrium in the short term is adjusted in the long term. Originality/value To the best of the authors’ knowledge, this is the first study to apply the ARDL model with national house prices in the housing market in Ghana and cognate countries in West Africa, establishing convergence between the short and long term. The outcome suggests that a stable macroeconomic environment is necessary to increase housing supply. Inflation stability, improved income, low policy rate and the overall health of the economy are necessary for the development and sustenance of the housing market. This study further provides information for property developers and investors in their property development and investment decision-making. Moreover, the study has expanded the frontiers of the limited macro-housing literature in SSA.