An examination of rental housing contracts in Ghana: Legal versus economic perspectives

Severe housing problem experienced by most cities in the developing world is a concerned to governments and policy makers all over the world. This is the case because housing is a basic necessity of life. Renting is the most common type of tenancy in most urban areas in Ghana. Due to the demand pressures existing in the market, most residents in the cities have difficulty entering and surviving in the rental market. This study examines the rental housing markets in Accra and Tema cities of Ghana. The study uses both the quantitative and qualitative methods to (i) examine empirically, the factors that determine the rental values; (ii) investigate the economic implications of the rent advance payment system from the perspective of both the tenant and the landlord; and (iii) assess the extent to which both landlords and tenants are protected by the legal system in Ghana. Interviews with 325 property owners and 344 tenants reveal that there is high cost of renting due to the shortage in the market. Both the tenants and landlords are aware of the severe shortage and the landlords take advantage of this by charging rent advance of mostly two years so that they can use the money for investment. Even though this contravenes the Rent Act of 1963, the tenants are afraid to take the landlords to the court for the fear of being thrown out or refused the accommodation. The study also reveals that some of the tenants actually convince the landlords to accept the bulk payment because they are afraid the landlords can increase the rent when the short term tenancy expires. The few cases sent to the courts did not see the landlords being punished severely and in most of them, the parties were asked to do an out of court settlement. That is information asymmetry largely exists in the rental market. A simple multiple regression shows that location is the most influential factor in determining rental values in Accra and Tema cities of Ghana. Policy recommendations have been proposed to help solve the problems in the current rental market system in Ghana.