Financing Housing Development in an Underdeveloped Financial Market: Learning from Developers’ Financing Adaptations?

Research shows that most households in developing economies rely on informal housing finance and self-help because of the challenges imposed by the underdeveloped capital markets. How housing developers navigate these challenges is less well understood, but this understanding is necessary to develop innovative financing solutions that efficiently meet the escalating housing demand in these economies. We fill this gap by examining the entrepreneurial adaptative financing of developers in Ghana. Our interest is the alternative financing mechanisms developers are innovating to economize the transaction costs (TCs) of accessing capital. These are examined through the lens of TC economics. Instead of debt (only 1.2% of developers used exclusively formal financing sources), we observe private developers’ efforts to coordinate finance hierarchically, in some cases adopting the roles of traditional banks. For most financing mechanisms, the homebuyer either co-creates or temporarily co-owns the property with the developer. The eight identified adaptive financing models economize TCs and traditional financing usage and support housing consumption, offering buyers pathways to homeownership without conventional mortgages. However, they do not support volume development and expose homebuyers to significant ex-post contractual hazards. Our study provides insights into creating responsive policies that increase housing finance accessibility, while protecting homebuyers.