The 1.7 million units housing deficit: Myth or reality?
Since the early 2000s, stakeholders in the housing sector have accepted without much question the notion that the nation faces a housing deficit of about 1.7 million housing units.
This has been quoted so often both in the media and academic publications that it appears to have been cast in stone and become an incontrovertible truth.
It is, however, curious that a figure that was supposedly estimated at around the year 2000 would remain impervious to demographic changes and ensuing developments in the housing sector.
In fact, the lapse of time alone should cause us to legitimately question the continuous references to the 1.7 million housing deficit figure in public and academic discourse.
In this article, I seek to draw the attention of stakeholders in the housing sector to the obvious inaccuracies inherent in the housing deficit estimates including fundamental misstatement of facts.
I must stress that this article is not seeking to downplay the seriousness of the housing crisis the country faces.
Rather, it is seeking to properly situate the challenges in the housing sector in the light of publicly available data on the deficit. This clarification is important for the following reasons.
First, public discourse on matters of national interest must not be based on incorrect statement of facts especially where such facts are easily verifiable.
Second, in situations where the public’s perception of the severity of a problem is shaped by inaccurate facts, policy responses by the government might be viewed with skepticism and face credibility deficit.
Third and more importantly, there is a real possibility for such inaccurate facts to distort the judgment of policy makers is designing policies to solve the problem.
A good starting point is to examine the source of the 1.7 million deficit figure, the 2000 Housing Profile report. This report estimated the housing deficit at 1.7 million rooms as at the year 2000.
Note the use of the word “rooms” instead of “units”, which is often quoted in the press and other publications. The difference between the two words should be apparent.
The Ghana Statistical Service defines a dwelling unit as “a specific area or space occupied by a particular household”.
Such a space or area may be comprised of one or several rooms. In effect, rooms make up a dwelling unit and the two terms cannot simply be treated as synonyms.
Using dwelling units in estimating housing needs or deficit can be misleading unless one specifies the composition of the unit in question and it is to avoid this confusion that the Housing Profiles used rooms as the basis for estimating the deficit rather than units.
To illustrate, assuming each dwelling unit comprises of two bedrooms and we estimate a deficit of say 1 million rooms, then expressing this in units will result in 500,000 units.
Thus, even if we were to take the 2000 estimate of the housing deficit as still applicable in 2017, we should be talking about 1.7 million rooms and not 1.7 million units unless we make the unrealistic assumption that each housing unit should comprise of one room.
As a matter of fact, given the national average household size of about 4 persons and an occupancy threshold of two persons per room as stipulated in the Zoning and Planning Standards (2011), two to three-bedroom units would seem to be the more appropriate housing unit sizes.
Consequently, the housing deficit as at 2000 should be no more than 850,000 units if we assume that housing units should comprise of two bedrooms, on average.
Besides the inadvertent misrepresentation of the 2000 housing deficit estimates, changes in the number of households and increases in the housing stock arising from construction of new houses should render the 1.7million deficit figure outdated.
Note that a deficit is only an indication that demand for housing exceeds supply and so long as both demand and supply are not static, we should expect the deficit figure to change overtime.
An examination of the fundamental drivers of demand (household formation) and supply (housing stock) for the years 2000 and 2010 show that there have been substantial changes over the period.
Thus, it is possible that the deficit may have worsened or improved since 2000.
Fortunately, the 2010 housing profile has provided a more recent estimate of the deficit figure and one would expect stakeholders to, at the very least, be more interested in this than the 2000 estimate.
Furthermore, the national housing policy, which is supposed to be the guiding document on all discussions relating to the housing situation in the country, uses the figures from the 2010 Housing Profile to ground the policy framework.
It is therefore very surprising that in spite of these more recent and readily available estimates on the housing deficit, stakeholders continue to rely on the outdated 1.7 million figure in public discourse.
Even though the 2010 estimates can also be regarded as stale, it is still worthwhile to highlight the deficit numbers reported by the Housing Profile.
According to the UN-HABITAT commissioned report, the country had a total housing deficit of 2.5 million rooms implying a worsening of the deficit by about 47% since the earlier estimate in 2000.
This fact should not come as a surprise to anyone who follows developments in the housing sector as there has not been a significant shift in the fundamental economic drivers or policy stance on housing over the past two decades.
It is important to stress that inasmuch as the worsening of the housing deficit is alarming and requires urgent attention, it is inappropriate to misquote or exaggerate albeit unwittingly in order to draw attention.
To be clear, there is no need for any such exaggeration, as the problems in the housing sector are evident to even casual observers. Using an average unit size of two bedrooms would imply a deficit of about 1.25 million units as at 2010.
There are good reasons to expect the deficit to have worsened since 2010. However, using the 2010 figure and a modest price of $20,000 for a two bedroom house brings the total sum required to clear the deficit to about $25 billion.
This represents approximately 60% of the nation’s current Gross Domestic Product and highlights the urgent need for the government to develop a system that incentivizes increased investments in housing over the next several decades.
Even though the 2010 deficit estimate is more recent, it did not have the benefit of the2010 Population and Housing Census as the Housing Profile was completed before the release of the census report.
The Housing Profile relied mainly on population projections based on past census reports. A careful analysis of the projected number of households, which is the key determinant of housing demand, shows that it missed the actual number of households by about 20%.
An even larger discrepancy can be expected in any estimate of the housing stock given the sheer lack of data on the numbers and nature of the houses produced through informal channels.
Incidentally, it is through the informal channels, which are characterized by a lack of access to any improved infrastructure, noncompliance with building and planning standards, and tenure insecurity that the vast majority of houses are produced in Ghana.
The foregoing observations suggest a need for a comprehensive study on the state of the demand and supply sides of the housing market in Ghana. This is particularly required for the major urban areas where the housing problem may be getting to a crisis level.
The effective implementation of the new property addressing system government has introduced should provide an opportunity to collect data on the housing stock on a continuous basis while census data either actual or projected should allow us to estimate the demand for housing.
It is vital that policies and solutions designed to solve social problems such as lack of housing are grounded on accurate and relevant data.
Besides, the data must allow for disaggregation into different aspects of the problem to enable policymakers to properly target solutions.
It is not very helpful from a policy standpoint to simply state the total number of the supply deficit without specifying the exact nature of the need. For instance, housing need has different facets and any attempt at estimating it must clearly specify the kind of need of interest.
These might include needs arising out of the following:
•Lack of own secure tenure, which includes the homeless, households with insecure tenures and unaffordable accommodation.
•Mismatch/unsuitable housing, encompassing overcrowding, sharing of basic amenities and under-utilization of housing (i.e. households occupying excessively large houses than required).
•Poor housing condition, including those lacking basic amenities such as kitchen, bath, toilets etc.
•Lack of social housing for vulnerable groups such as persons with disabilities and the aged.
A housing need assessment that quantifies the needs arising out of each of these would be invaluable to policymakers and other stakeholders in the housing sector as we seek a lasting solution to the housing crisis the country faces.
An important dimension that has largely been absent in the discussions on the deficit is the extent to which the unmet demand is effective.
In other words, even if we settled on the exact number of the housing deficit, it would still be important to get a sense of how many units can be absorbed by the market by giving due consideration to issues of affordability and purchasing power.
This is particularly relevant for the real estate development industry whose major interest is in providing units that would be purchased in a timely manner.
It would not make economic sense to build houses in response to demand that is not backed by purchasing power.
It is in this regard that urgent attention is required in developing a sustainable formal housing finance system that can deliver affordable finance to households across the different spectrum of incomes.
A related issue is the non-segmentation of the housing market in discussing the deficit. There is no doubt that Ghana faces challenges in the supply of affordable and decent houses for the middle and lower income segments of the market.
However, same cannot be said of the high-income segment of the market. Anecdotal evidence points to the fact that supply in the upper-income segment is adequate and there are even fears of possible oversupply.
Housing remains central in every effort at improving the socioeconomic wellbeing of the Ghanaian and stakeholders in the housing sector must fully understand the extent of the problems the nation faces in providing decent and affordable housing for all.
This requires an up to date, reliable and accurate data on the housing need. The current situation where even basic facts such as the housing deficit are questionable does not inspire a lot confidence in our ability to solve this problem.