Government’s hunt to protect tenants: Will price control succeed as nearly 60 percent of incomes are spent on rent?
If you’ve spent time in the last few years looking for accommodation in Ghana, you’re most likely to come to the conclusion that current prices are ridiculously high coupled with the fact that most landlords or owners demand two years advance payment. The state of Ghana’s rental market in major cities like Accra and Kumasi, driven by high demand and the slow pace of new housing clearly demonstrates that the question is not whether rent is rising, but rather by how much? Even as our economy continues to grow, Ghanaians face widening inequality, while many are unable to comfortably pay as the cost of housing escalates amid wage growth stagnation. While many struggle to raise money for rent, majority cannot afford to buy a house and saving for that down payment is not going to get any easier
Beyond the frightening amount of money, the average renter pays away every year or two, the truly alarming part of this situation is that the math adds up. This constant rent increase is the rational result of a series of economic trends. With supply shortages across the country, the simple answer to the high rent charges is to build more houses. But the reality is even more complicated than simply jump-starting construction. A variety of market forces and policy decisions have conspired to make building affordable housing difficult. Today, many Ghanaians spend at least 60 percent of their incomes on rent and for long no immediate solution had been found to the shortage of affordable housing options. This figure per my own calculations is at variance with a National Housing document which suggests that for housing to be affordable, it must not exceed 30 percent of a persons basic salary.
But thanks to a new policy, this age-old problem will soon become a thing of the past. The NPP on page 157 of its 2020 manifesto on housing aims to address the challenge by establishing a National Rental Assistance Scheme (NRAS) to be partnered by the private sector. The scheme according to government will advance low-interest loans to eligible Ghanaians to enable them to pay their rent advance. And to ensure the sustainability of the scheme, the loans will be insured, and repayment made on a monthly basis to match the tenor of the rent. The government is also committing seed money of 100 million cedi’s which will be leveraged to buy-in additional private sector investment. Regular income earners in both the private and public sectors are expected to benefit from this facility.
So, government makes the rent advance payment directly into the accounts of landowners, who will be mandated to register with the scheme and in turn make monthly deductions from individual salaries . This is part of major reforms being made to the Rent Control Department which includes the digitization of their operations
Laudable as this may sound a few questions remain unanswered. The current rent Act 220 which is undergoing review stipulates that property owners can charge no more than six-months’ advance rent, with subsequent rent payments due every six months. But this law has been flouted with ease by many including the makers of the law. Will the new Rent Act revise or maintain the six months? My readings of literature about the origins of rent control and the idea by government to limit the amount landowners demand has been around for as long as people have. In the ancient Rome, there were attempts by the Popes to prevent exploitation of the Jews by their Christian landlords. The Romans attempted it some thousand years later and then after another almost two thousand years, American President Richard Nixon also did. The desire by politicians to put a ceiling on price is enticing but with little rate of success. So, one wonders why it is still very much popular today despite the failure to lower prices by law. Infact some schools of thought suggest that instead, it acts to restrict the supply of housing and even leads to decay of houses as owners have less revenue to spend on maintenance and improvements.
Another concern also will have to do with how the NRAS operates to ensure that proper data and particulars of individuals are taken to determine their credit worthiness so that monies are not just doled out to discredited individuals and party fanatics. Much as government is stepping in to alleviate the plight of tenants it must not be seen to be making losses. In an economy with high inflation and given the promise of low-interest rate would the real value of money be able to match the demands of landlords? and how will the scheme manage credit risk?
Again, landowners will be required to register with the scheme in order to receive payment from government. The question is what then happens to landowners who refuse to be a part of the scheme and continue to operate secretly?
Another major concern will be the role of middlemen often called agents and their role in the scheme of affairs. These guys may not have an entirely pleasant role in the value chain but they also have a livelihood which may likely be eliminated.
One good thing however is that individual salaries will have to be matched with the type of accommodation, essentially meaning that individuals who earn below a certain threshold may not be eligible for certain houses.
While skeptics opine that rent control has nothing to do with housing and is merely an effort to gain political power, and control of private property with a misleading promise to people that somehow they will get to choose how much they will pay for rent, others are of the considered view that this is well thought through and offers relief for many.
Be that as it may, this policy will go down in history as one of the most popular government interventions since the fourth Republic if effectively implemented but the NPP must first win the elections to see that happen.