Macroeconomic policies, house prices and housing supply in Ghana: The role of economic growth

Abstract

In many developing countries, housing debates and policies are focused on making prices affordable for consumers and increasing the supply. Despite the ongoing efforts by governments, there is compelling evidence that the informal sector drives the housing markets in developing economies. Hence, sound macroeconomic policies that affect consumers may serve as a lever to reduce prices and increase supply. This paper, therefore, examines the efficacy of monetary, fiscal, and debt policies on house prices (HP) and housing supply (HS), while underscoring the inclusive and exclusive roles of economic growth in Ghana. We utilized the Fully Modified Ordinary Least Squares (FMOLS) and the Canonical Cointegrating Regression (CCR), supported by annual data from the period 2000 to 2023. The study establishes that, regardless of whether economic growth is included or excluded from the model, house prices and housing supply respond to macroeconomic policies. HP and HS are marginally affected by the monetary policy rate (MPR), fiscal policy (FP), debt policy (DP), and economic growth (RGDP). Moreover, both HP and HS have a positive influence on each other. This study has therefore expanded the scope of macro housing studies by utilizing macroeconomic policies and concurrently assessing the inclusive and exclusive roles of economic growth in a developing country. The study, therefore, contends that regulators’ reliance on general macroeconomic policies for housing market development may inadvertently impede sectoral growth. Consequently, targeted macro-housing policies that enhance supply and align prices with household income levels are imperative. These include, inter alia, dedicated housing development funds, special lending rates for the housing industry, and strengthening the land tenure security of incremental developers. Furthermore, to sustain the growth of the housing market, the study emphasizes the importance of stable core macroeconomic fundamentals, namely, interest rates, exchange rates, and inflation. These indicators reduce financing costs, preserve purchasing power, and enable households to pursue incremental housing development, which remains a dominant delivery mechanism in developing countries.