Cost-Push Inflation, Inelastic Demand, and Non-Traditional Buyers: A Three-Dimensional Analysis of Nigeria's Urban Real Estate Resilience Despite Macroeconomic Decline

Abstract

Nigeria’s urban housing market presents a paradox between 2010 and 2025: despite severe macroeconomic decline marked by volatile GDP growth, average inflation of 15.7%, exchange rate depreciation, and a shrinking middle class from 23% to 11% of the population, prime residential property prices in Lagos, Abuja, and Port Harcourt rose over 380% while luxury estate construction continued. This study investigates the three-dimensional drivers of this resilience by integrating cost-push inflation, demand inelasticity, and the emergence of non-traditional buyers. The broad objective is to decompose the relative contributions of cost-push and demand-pull factors to housing inflation, estimate price and income elasticity of demand across housing segments, assess the impact of diaspora remittances, High Net-Worth Individuals, politically exposed persons, and illicit-wealth actors on demand and prices, and explain developer supply response despite weak middle-class purchasing power. Anchored on Keynes’ (1936) inflation typology, Marshall’s (1890) and Engel’s (1857) elasticity theories, Acemoglu and Robinson’s (2012) political economy framework, and Aalbers’ (2016) financialization of housing theory, the study adopts a mixed-methods explanatory sequential design with quantitative dominance as prescribed by Creswell and Creswell (2018). The quantitative phase uses quarterly secondary data from 2010Q1 to 2025Q2 sourced from the National Bureau of Statistics, Central Bank of Nigeria, World Bank, Northcourt, Broll, Capgemini, and the Economic and Financial Crimes Commission, yielding 62 observations. Structural Vector Autoregression following Blanchard and Quah (1989) decomposes cost-push versus demand-pull shocks. Panel fixed-effects regression estimates price and income elasticity of demand. Autoregressive Distributed Lag bounds test by Pesaran, Shin and Smith (2001) examines long-run effects of non-traditional buyers. A Logit model tests developer supply response based on Tobin’s (1969) Q-theory. The qualitative phase conducts 12 key informant interviews with estate surveyors, developers, and diaspora-facing agents in the three cities to capture cash and illicit capital dynamics not reflected in official data, following Kvale’s (1996) interview theory. Findings reveal that cost-push shocks explain 71.2% of house price variance at an eight-quarter horizon, while demand-pull factors account for 19.8%, confirming that building material costs, diesel, and naira depreciation dominate price formation more than aggregate demand. Housing demand is price-inelastic with an overall price elasticity of demand of -0.31, and luxury segment elasticity of -0.13, supporting Glaeser and Gyourko’s (2003) argument on inelasticity in supply-constrained cities. Income elasticity of 0.54 shows housing remains a necessity for the aggregate market but approaches luxury status for cash buyers. Non- traditional buyers exert significant positive effects: a 1% increase in diaspora remittances raises prices by 0.42%; High Net-Worth Individual count and cash buyer ratio also significantly increase prices, validating Stark and Bloom’s (1985) New Economics of Labor Migration and Veblen’s (1899) conspicuous consumption theory. Developer new project launches are driven by Tobin’s Q ratio and land appreciation, both significant at 1%, while Central Bank Monetary Policy Rate is statistically insignificant, confirming that with mortgage penetration below 1%, developers target cash-rich buyers and rationalize supply based on Q-ratio rather than interest rates as predicted by Myers and Majluf’s (1984) pecking order theory. The study concludes that Nigeria’s urban real estate resilience is structurally driven by cost-push inflation, bifurcated inelastic demand from non-traditional buyers, and developer rationality based on asset appreciation rather than macro income growth. Policy implications include reducing cost-push pressures through local building material production and foreign exchange stability, reforming mortgage markets to re-engage the middle class, and strengthening anti-money laundering enforcement to curb distortions from illicit capital. The research extends housing economics literature by integrating inflation decomposition, segmented elasticity, and developer supply logic in a low-mortgage, high-inflation context, and provides a template for analyzing housing markets in similar Sub-Saharan economies.

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