Macroeconomic determinants of residential property prices and bubble testing in the property market in Ghana

In this paper, we examine the main macroeconomic factors that determine residential property price changes in Accra, the capital of Ghana and also test whether the residential property market is in bubbles. We employ quarterly time series data over 25 years and the vector error correction model (VECM) to examine the dynamics of the market. The principal results stemming from this paper show that GNI per capital, employment rate, inflation rate, stock prices, interest rate, cocoa price and urban population growth positively drive residential price in Accra. The results also establish that there is a long-term relationship between the seven macroeconomic indicators and residential prices in the country. Any short-term disequilibrium correct itself over the long-term because of these economic forces. This phenomenon suggests that the residential property market is not in bubbles. Understanding the fundamentals of residential market affordability in the country remains a challenge for policy makers. The study, which is a novelty in Ghana has accordingly produced results with policy implications for the government and policy makers in promoting residential property in the country, particularly in developing policies for residential market affordability.