Kweku Eshun’s thoughts….‘Two Years Rent Advance’ and the incidence of ‘Peptic Ulcers’ in the Ghanaian workforce …Some practical economic arguments for ‘pay-as-you-go’ option

Dr Kweku Eshun

Unconfirmed reports, I have received from unconfirmed sources, confirm the increasingly higher sales of ‘peptic ulcer’ medication to Ghanaian workers each time their rent expires. (Forget the unemployed.  They have no business talking about rent!!!).

As usual my penchant for exaggeration and jokes got the better of me. My sincere apologies! But make no mistake accommodation blues caused by our devastating practice of charging astronomical rent advance is a major headache (or rather stomachache) that could be contributing to the health crisis the Ghanaian workforce is experiencing.

Evidence? Our National Health Insurance expenditure may provide a clue but that’s another discussion all together. This piece argues the case for the full implementation of our laws on rent advance from an economic perspective, generates the appropriate compelling discourse and shows how this core anchors and integrates other dimensions to provide a holistic and self-sustaining solution to our economic woes.

Although Ghana’s Rent law (Act 220) dictates that a maximum of six (6) months rent advance should be collected by landlords, this has been contemptuously ignored (since 1963?) and remains unenforced just like many other laws on the books. Landlords, on the average, continue to collect between two (2) years to three (3) years rent advance. This situation has been the subject of many heated and animated discussions by street level ‘economists’ (i.e. the struggling masses), professional and unprofessional stakeholders in the housing industry, local labor organizations as well as players in the government arena (i.e. cabinet and parliament).

Numerous articles and position papers have been submitted in various media and fora passionately arguing the case for housing rent reform and full implementation of the law from various perspectives. These include the human rights perspective i.e. the God given right of each individual to safe and adequate housing, transactional fairness and equity positions, political exigencies as well as social, moral and humanitarian arguments etc. These obviously have not been effective or convincing enough to galvanize action (political or otherwise) to enforce laws on rent advance. Why?

In my humble opinion this case is being argued from the wrong perspectives and worse, they do not integrate all the other arguments into a gestalt which provides long term sustainable solutions. Perspective is critical in resolving any problem. You can only provide the right answers if the question you choose to answer is the correct one given the specific context.

During ‘World Habitat Day’ the people of Ghana, with great fanfare, interesting themes and statements affirm the “basic divine right of each individual to adequate shelter”. I can only assume that the recognition of this inalienable right is the basis for the calculation of the housing deficit which now stands at 1.7 million, according to the Minister of Works and Housing, with a view to making a serious attempt at bridging this gap. Since independence however, successive governments have only paid lip service to ensuring that “the son of man has a place to lay his head just as the birds and foxes have nests and holes respectively”. Despite their best efforts they have failed to bridge this ever increasing housing gap.

My suggestion is they are answering the wrong question. This very popular human rights perspective has also failed to address this problem effectively because unlike the advocacy which successfully championed child rights, women and gay rights through mainstreaming together with naming and shaming of governments or culprits the rent advance juggernaut is a lot more complex. Just like the gun lobby in America, the rent advance lobby in Ghana is strong and controls (or has a firm grip on) government. Yes, human rights advocacy contributed to achieving the enactment of the rent advance component of the law. Now we need a different logic to change or override the mindset of the ‘rent advance lobby’ and ensure the full enforcement of the laws.

Mr Haruna Iddrisu, the brilliant and affable minority leader and Honorable MP for Tamale South, aptly identified two central issues whilst contributing to the 2017 observance of the World Habitat Day. First, that “the daily headache of the ordinary Ghanaian is access to shelter and a good home” (is this the result of what he calls “the housing challenge”?) and secondly and most importantly, that the two years rent advance syndrome “which requires workers to mortgage their salary for 2 years is the bane of this country”. (Emphasis mine!). He further admonished that government rhetoric must end and give way to purposeful action. I submit however, that his solution regarding “how housing can change the circumstances of a people” through innovative financing arrangements is not compelling.

The political perspective has been, and continues to be, a nonstarter. Politicians, with their penchant for a legacy of large, visible projects which they believe constitute ‘incontrovertible’ evidence of economic development and are strategic for garnering votes, are not interested in simple but effective solutions which may not provide immediate gratification. Secondly, who do they obtain their large campaign contributions from? Your guess is as good as mine.

Property owners who continue to lobby for the non-enforcement of the rent advance law.  Thirdly, politicians who by and large are property owners themselves or aspire to be one, refuse to shoot themselves in the foot by reducing their income from rent advance. So instead, they promote the solution of government direct investment in construction of housing units ostensibly to bridge the 1.7million deficit in housing stock. They scream ‘affordable housing’!!……… however, they fail to tell us how affordable and by whose standards!! Again they tackle the wrong question and therefore achieve very limited success with economic growth and expansion.

Regarding the transactional fairness and equity perspective it is clear that the natural inclination of human beings for opportunistic behavior in order to maximize or optimize utility and profits accruing to them as a result of transactional power means the gap between landlords and tenants will not be bridged through moral persuasion.

This has to be enforced but as long as the political elite are themselves landlords (or potential landlords) we have a catch 22 situation. Indeed, the frustration of Mr Mohammed Tuferu, Honorable MP for Nanton was clearly articulated in his contribution to the observation of the 2017 World Habitat Day when he stated that “you can find it (i.e. Housing in Accra) wherever you want, but it is affordability ……… and landlords demanding two years or three years advance payment with high rates which are beyond ones means”. So the main issue is not the lack of or unavailability of housing units, at least in Accra. Honorable Tuferu is right on that score but his appeal to the conscience and moral values of landlords “to do whatever they can to reduce rates as well as number of years they want to give out for rent” as a solution is mind boggling.  How can you ask cats to have mercy on mice which constitute their main source of protein? Or in the case of landlords their main source of cash which ‘oils’ their comfortable lifestyles?

There is definitely the need for a humanitarian and social perspective to development. This is necessary to mitigate the suffering of the extremely poor and the very vulnerable members of our society. However, I wish to stress that a long term sustainable solution, which ensures inclusiveness and gives equal opportunity to all, will require a more comprehensive approach with economic arguments at its core.

My practical economic arguments invoke the age old debate between investment and consumption as drivers of economic growth. Whilst this debate may be considered by skeptics as basically an academic exercise it has serious practical implications for a developing nation like Ghana.

My strongly held view is that each country-specific context will dictate the preferred core strategic economic driver. Please tell me if in practice, you my wise and cherished reader, will today invest your scarce and expensive resources in the production of any goods or service for which there is no anticipated or present demand in Ghana. Who does that? So clearly consumption (anticipated or actual) wins the debate and is the preferred strategic economic growth driver in our specific context. Investment makes sense only to the extent that there is unmet demand (current and anticipated) for goods and services.

The fact remains that Ghana has a relatively small population which generally earns rather low incomes. This combination of a small population and low income levels is the reason why manufacturers in Ghana complain that we have a small market with low aggregated buying power which does not support large scale production. In other words, we have relatively very little to spend on the purchase of goods and services. I know that Scandinavian countries like Denmark, Norway and Sweden have small populations too. But please, the workers in these countries have some of the highest income levels (never mind their income tax regimes) in the world which translates into a rather large aggregated buying power, consumption or market. From our low incomes Ghanaians provide all their basic needs, including housing and shelter. Yes, this includes even the destructive, ‘peptic ulcer’ inducing 2 years rent advance which accrues to only a few landlords. The irritating fact, as far as Ghanaian businesses are concerned, is that these miserly landlords, who probably have diseases caused by their rich lifestyles, do not spend or consume much. They hoard the money (savings?) mostly outside Ghana.

They further reduce Ghana’s already small aggregated market and buying power by squeezing out a huge percentage of worker’s disposable incomes as rent advance. In one fell swoop they significantly reduce our aggregate spending and consumption for all goods and services including housing.

This means our business people and entrepreneurs have less incentive to invest in increasing production levels or production capacity. This is even more true for the housing market which has end products i.e. houses which cannot be exported. So investors in the housing sector basically have only the local market to deal with.

Given our peculiar situation i.e. small population and small aggregate buying power we need to spend and consume our way to ‘economic salvation’. We need to release the full potential of our purchasing power which constitutes the real and effective market for goods and services in Ghana. Please note that I am talking about spending and consumption by the good people of Ghana individually and not investment spending by the government for projects. The government must recognize and understand that this is the needed trigger for increased economic activity and growth.

Till date successive governments stress project investment e.g. roads, housing, hospitals, power etc. spending because they do not understand or believe in the ‘economic redemption power’ of consumption by the general populace and the corollary economic logic which follows from our peculiar condition. Why build a bridge when we cannot pay adequate tolls to enable reimbursement of the loan acquired by government for the project? Why (borrow to) invest in a new power plant when factories which are operating at 20% capacity have no need for extra power because of low sales of their goods and services? When we have adequate consumption i.e. demand for goods and services by the Ghanaian populace we will trigger the necessary private and public investment in all sectors.

This has been crystal clear in the telecoms sector which has seen such tremendous growth over the years making MTN, Vodafone etc. the leading companies in Ghana. What do you think would happen if the telecom companies asked customers to pay two years advance recharge units before they are allowed to access their voice and internet solutions? Consumption or market would dry up. They would have no incentive to invest. The same goes for DSTV as well. The ‘pay as you go concept’ is the key to their success. This same concept holds the key to opening up our economy and increasing exponentially the ability of the populace to access their housing and other needs. The question is how do we (quickly) achieve this? How does the rent act (220) facilitate this?

Monthly housing rent constitutes between 35 to 40% of the income of the average worker in Ghana. Even if we should accept the term ‘affordable housing’ each worker is therefore technically able to pay for suitable accommodation each month as long as they are gainfully employed. They can decide to sacrifice the satisfaction of other needs or collaborate with other colleagues to secure rent money for each month so they experience the associated peace of mind and independence.

My contention is that knowing they can pay for accommodation once they are gainfully employed most people will be motivated to look for a job (or jobs). Even for our small population the demand or market for ‘affordable housing’ in terms of numbers is appreciable. Unfortunately, given our  present reality “workers have to mortgage 2 years’ salary” in order cover rent advance payment which means their disposable income is completely exhausted and leaves no room for other discretionary spending. You either stay longer with your parents if you are lucky, acquire high interest loans or simply relocate to shelter not fit for human beings. Hence the development of shanty towns, cardboard homes and kiosks cities with their attendant diseases and social evils. So part of the extreme poverty we are experiencing is induced by the advance payment regimes we operate.

Should our government however, fully enforce the rent law Act 220 then workers will individually be left with a greater portion of disposable incomes which will be released for other discretionary spending and consumption as they do not need to pay more than six months rent advance. This is the immediate source of the increase in the market for goods and services beyond housing. Indeed, it is my hypothesis that should the government push for further rent reform and limit advance payment to 2 months then practically every worker will be in the position to look for shelter and housing and effect payment even if these are priced slightly higher and still have a significant portion of their income outstanding.

The aggregate effect will be a significantly higher effective demand for all ranges goods and services including housing units. This is the natural economic effect of the application of the ‘pay as you go concept’ regarding housing rent. This immediate release of consumption power will trigger the necessary private and public investment in the housing sector. Indeed, I suggest that all sectors which provide basic human needs will benefit from this increased spending and consumption. I know that those brilliant economists will talk about the effect of our ‘propensity to consume or spend’ on the demand for specific products and services.  That’s okay. But presently we are concerned with the core logic that explains the creation of a larger local market for all goods and services. The other details can be worked out by the brilliant professionals.


As I indicated at the beginning of this piece the economic perspective which highlights the release of the full consumption potential of the Ghanaian populace provides the bedrock to which all other perspectives are anchored. How so?

In order to build on, and capitalize on, this increased capacity to consume goods and services it is absolutely necessary to be able to clearly identify each individual in Ghana and the location of their individual unique abodes. This way we can actually further increase the consumption horizon of each worker by providing access to credit (i.e. credit cards and other forms of short term credit facilities). This for me is the real reason why we need the National Identification Card. Citizen identification is necessary as a primarily pillar for wealth generation in Ghana. The question of identification for tax purposes is relevant but secondary. We should target long term growth and revenue from taxes will increase automatically.

The expert banking sector will immediately notice the business potential for loans to the housing sector because as everyone already knows we have a huge deficit of 1.7 million housing units. They will structure and sell the necessary cheaper long term loans because of the reduced risk of bad loans. After all citizens can be clearly identified and credit profiles developed. Housing as a business will be attractive to individual entrepreneurs and organized real estate investors. They will take advantage of the ready market and available ‘innovative’ financing.


This is true for all sectors which provide basic human needs which benefit form increased consumption as a result of the adoption of a ‘pay as you go’ housing rent policy. The statement by Mr G.K. Agboza, Honourable MP for Adaklu whilst contributing to discussions on the 2017 World Habitat Day celebration is instructive. He said, “If housing takes off in this country, we can forget about mining and agriculture. It is an industry that can affect every single thing. In every country that housing booms, the economy booms”. The question is how do we get housing to boom so the whole economy booms. I have tried to provide the practical logic, mechanism and process for achieving this goal.

All government activities and effort to create the right business environment to o encourage both local and foreign direct investment (e.g. develop a fair and efficient judiciary, transparent governance, corruption reduction, higher productivity, effective tax collection system, building a strong industrial and agricultural base, borrowing for the development of infrastructure, building a peaceful and secure country, higher quality standards, better health delivery, financial stability  etc.) should be anchored on the benefits of increasing the capacity of the population to consume goods and services. Yes, this naturally requires focused and complex co-ordination.

Our economy will become larger and more complex as the population grows, consumes more and our definition of ‘basic needs’ changes and broadens with more sophistication. We all gain and become richer as we receive bigger portions of a much bigger pie, so to speak. The landlords with their properties will have access to more bank finance and a larger and more structured customer base which will be clearly identifiable and able to pay higher monthly rent. They make even more money. The politician will also take the credit for economic growth general well-being of the populace. This translates into more votes and support for them.

Generally, effecting change in long established cultural or social-economic relationships is a very tough endeavor. However, when those who control state power, and are invested with directing affairs of the country, clearly understand what constitutes the core strategic economic development driver they will work assiduously to effect the necessary changes. They will work to overcome resistance by lobbyists and apologists of selfish interests by building consensus between the different parties or stakeholders.  They will cater for their different and unique special interests and associated levels of power, by clearly demonstrating how everything and everyone fits into the economic jigsaw puzzle so we optimize system as a whole. Both the landlord and the rentee win. The advanced countries have achieved high levels of development because they understand the principles underlying this perspective. Ghana can and should do this quickly as well.

It is important to note that anchoring development on the ‘economic perspective’ as detailed above ensures that we quickly achieve the goals of the human rights, social, moral, ethical and humanitarian and political perspectives as well concurrently.

Consumption is the key driver for development at this moment in Ghana’s history. As long as we do not understand this we will continue to fail to change the plight of the ordinary worker, extricate ourselves from our economic bondage or eradicate poverty and unnecessary suffering. ‘Ghana beyond aid’ will remain a pipe dream!!!

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