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Housing contribution to Ghana’s economy

Over the years Real Estate and Housing contribution to Ghana’s economic growth has been grossly overlooked and undocumented. Housing development has mainly been an individual affair. Central Governments have not captured housing as part of national wealth and assets.

One major reason is the lack of a national housing development programme or policy document highlighting central government housing priorities. This article discusses the importance of housing and its contribution to Ghana’s gross domestic product (GDP).

Housing contributes to GDP in two ways. This is through housing construction and housing occupancy. The housing construction is also referred to as capital investment good or residential fixed investment (RFI) in the US. The RFI measures home building, multifamily development and remodelling contributions to GDP. This includes the construction of new single-family and multifamily structures, residential remodelling, production of manufactured homes and agents and brokers’ fees.

The second contribution (i.e. housing occupancy) to GDP is classified as the consumption good. This measures housing services such as gross rents (including utilities) paid by tenants and owners imputed rent (i.e. you estimate how much it cost to rent owner-occupied units). From the economics point of view, it is necessary to include the owner’s imputed rent, because without it increases in homeownership could lead to declines in GDP.

Under national income accounting, there is a form of double-counting which occurs in relation to capital investment goods. It is counted when created and again counted when they are used to create consumption goods. This is best illustrated in the following example. Newly built apartments are classified as a new investment good and when the flats are used as rented accommodation the value of the rented services is also counted in GDP as a consumption good.

According to Dr Cameron Murray, an Australian Economist, “the production of investment goods is a large share of GDP — between 20 and 40% in most countries. By ignoring this production, which is also the more volatile part of production over the business cycle, GDP loses much of its value as a measure of how economically active a country is.”

Therefore, a consciously planned real estate development add value to Ghana’s economic growth and over time to the share of GDP. Also, Ghana’s residential real estate development is not driven by Central Government policy. As a result, Ghana’s GDP is losing its value as a measure of how economically active we are. There is also a traditional mindset that houses are built to live and not to sell. This definitely make housing lose their economic value!

According to Dr. DeSoto, the major difference between the developed nations and the poor undeveloped nations is the lack of appreciation of the value of a home or building. He calls it “latent or dead capital”.  Banks in Ghana traditionally have ignored this equity even though capital in this is the safest of investments. It is estimated Ghana has billions of dollars’ worth of such dead capital that could be easily activated if our Banks and Government recognise it.

We also know that in developed countries house prices affect how much money people spend. The Bank of England report indicates since the late 1970s house prices in the UK has tripled. Generally, when house prices increase homeowners feel more confident and therefore spend more money. Similarly, a drop in house prices negatively affects consumer confidence and reduces consumer spending which eventually leads to lower economic growth.

For example, in the UK equity withdrawal alone in 2006 added an extra £14billion to consumer spending when house prices increased. However, in 2008 when the financial crisis led to a fall in house prices, equity withdrawal was negative (i.e. -£7billion). This means people took the opportunity to pay off the mortgage. This suggests a drive for investment in housing development and an increase in home ownership creates wealth and significantly increases economic activities in other sectors of the economy.

Furthermore, real estate plays an integral role in the US economy. Residential real estate offers housing for families as well as a source of wealth and savings to many households. For instance, home equity rose to $85 billion in 2006, dropped to less than $10 billion in 2010 but rose to $14 billion in 2017. The U.S. Bureau of Economic Analysis (BEA) reported that in 2018 real estate construction contributed $1.15 trillion to their economy which is 6.2% of US GDP. This was more than the $1.13 trillion recorded in 2017.

We must note that building new homes generates jobs in the industries that produce concrete, plumbing materials, lighting fixtures, roofing sheets and other products that go into the construction of the structure. They also create employment for carpenters, electricians, masons, plumbers, fitters and iron workers.  We should not forget also the impact of housing in the manufacture of appliances such as refrigerators, washing machines and dryers, dishwashers and air conditioners. Furthermore, in developed economies, housing investment generates jobs for professionals such as Architects, Engineers, Real Estate Agents, Lawyers and Accountants.

The housing contribution to GDP in the US and UK economies shows the lack of attention and investment in Ghana’s housing sector is hurting our economy. The Ministry of Finance & Economic Planning and Ministry of Works & Housing are, therefore, urged to produce a national strategic plan to invigorate Ghana’s real estate and housing sector.


Profile: Kwadwo Owusu-Darko is an architect and specialises in Housing. He has over 20yrs experience in real estate development, regeneration and housing management in the UK. He is the Co-Founder & Executive Director of Centre for Real Estate & Social Housing, a research and advocacy think tank.


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