When rent eats the economy: Lagos and the macroeconomic cost of unaffordable housing

Lagos has become one of the clearest examples in Africa of how a housing market can quietly metastasize into macroeconomic risk.

When working and middle-income households routinely spend 50–70% of their income on rent, the damage extends far beyond “housing stress.”

It manifests as weaker consumer demand, diminished productivity, and a slower, more fragile growth trajectory.

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This is structural dysfunction and should not be seen as a transient affordability squeeze.

The housing situation in Lagos is both a social crisis and an economic emergency.

The scale and persistence of the distortion is alarming. When half of a household’s income disappears into shelter costs month after month, the economy loses twice: once in foregone consumption, and again in diminished productivity.

Lagos is not merely expensive to live in. It is expensive to operate in, and that cost is compounding.

**Density, demand, and deficit **

The forces driving Lagos’ rent crisis are not mysterious. Lagos is Nigeria’s densest state and a magnet for migration and job-seeking, with the bulk of its population living and working inside the metropolitan area.

A World Bank assessment notes the city’s exceptional density to be around 8,000 persons per square kilometre, far above the national average. Population and economic activity are heavily concentrated in the urban core, while rapid, uncontrolled spatial expansion pushes growth outward into peri-urban areas.

The combination of density, in-migration, limited serviced land, and infrastructure bottlenecks produces a predictable outcome: demand for housing outpaces supply, rents climb faster than wages, and the city’s labour market becomes quietly taxed by shelter costs.

The rent figures themselves tell the story. A 2025 Lagos residential market report cited by The Guardian shows annual rents for one-bedroom apartments reaching as high as NGN20.9 million in Eko Atlantic, with other prime neighbourhoods such as Banana Island, Ikoyi, and Victoria Island also posting multi-million-naira averages. Even away from the most premium districts, one-bedroom apartments in parts of the Mainland run into millions of naira annually.

It is easy to allude this to just an “Island problem.” However, that would be untrue. We are experiencing a citywide affordability squeeze with varying intensities across locations.

The “State of Lagos Housing Market Report (Vol. 3)” estimates the housing deficit at roughly 3.4 million units and notes that over 70% of residents remain renters. The rent burden, therefore, is not a fringe issue affecting a small segment. It is a central feature of how most Lagosians live.

**The demand collapse: How rent crowds out consumption **

Once rent consumes 50–70% of income, the economic mechanism is straightforward. Household demand falls because rent claims earnings first. For a large share of workers, rent crowds out the routine consumption that sustains local commerce and employment.

The most immediate casualties are economically vital expenditures: home repairs, better food choices, preventive healthcare, digital services, and small savings that often fund microenterprise. The result is reduced turnover for small businesses, weaker expansion plans, and fewer new jobs. This matters especially in Lagos, where much of the economy is service- and trade-led, and where thousands of small firms depend on the weekly purchasing power of salaried workers and informal earners.

Nigeria’s official expenditure-side GDP data shows household consumption weakening sharply in real terms in 2024, with large year-on-year declines reported for Q1 and Q2. Many factors contribute to consumption stress, but housing is one of the biggest fixed drains, particularly in Lagos. When a household’s shelter cost rises faster than its income, the adjustment happens elsewhere in the consumption basket.

If that condition becomes normal for a majority of urban workers, demand compression stops being cyclical and becomes structural.

**The productivity penalty: Commutes as hidden tax **

Lagos’ rent crisis also damages the supply side of the economy through productivity. Long commutes are the hidden tax that follows unaffordable housing near job centres. As rents in employment-dense areas rise, workers are pushed to the periphery, and commuting time expands.

Over time, that reduces effective labour hours, increases stress and health costs, raises absenteeism, and weakens human capital formation. In a city where population and jobs are highly concentrated in the metro core, and where peri-urban expansion is rapid, the commute penalty is a predictable by-product of rent inflation and a measurable drag on output.

**The inflation trap: When prices chase each other **

Inflation compounds these pressures relentlessly. Nigeria’s CPI reporting shows an elevated price environment, with high headline inflation readings and continuing increases in the general price level. In such a setting, landlords often reprice rents defensively to preserve real returns, while tenants face rising costs across food, transport, and utilities.

When both general inflation and rent inflation run ahead of wage growth, the squeeze on real disposable income becomes severe and persistent. Lagos then experiences a paradox: the city may look economically “busy,” yet real household welfare deteriorates and demand becomes brittle.

**The international benchmark: Just how bad Is 50–70%? **

Comparative analysis reveals how abnormal Lagos’ rent-to-income outcomes are. Internationally, a common affordability benchmark used in research and official statistics is around 30% of income, with higher shares treated as “cost-burdened.”

A Harvard Joint Center for Housing Studies review notes how widely the 30% standard is used as a reference point for affordability stress.

In England, for example, official survey-based reporting shows private renters spending an average of about 36% of gross income on rent in 2024, with London higher still at around 41.6%.

Those figures are treated as a serious affordability problem in a high-income economy. Against that backdrop, Lagos households spending 50–70% on rent are not just above the warning line. They are living in a zone of chronic demand suppression and heightened economic fragility.

**The vicious cycle: From rent burden to job scarcity **

When demand is squeezed at scale, employment suffers. Businesses respond to soft demand by cutting hours, postponing hiring, and reducing inventory. In Lagos, where informal and service employment is extensive, the labour market reacts quickly to demand shocks.

A rent-driven demand squeeze therefore has a direct line to unemployment and underemployment, even if official labour statistics lag the lived reality. The result is a vicious cycle: rising rents reduce demand; weaker demand slows job creation; weaker job creation reduces bargaining power and wage growth; and stagnant incomes make rent even less affordable.

**Policy implications: Supply, not slogans **

This is why housing affordability in Lagos should be treated as an economic reform issue, not a welfare talking point. A city cannot grow inclusively when its workforce is priced out of stability.

The findings on high rent burdens, large housing deficits, and a renter-heavy population should be read as macroeconomic signals: Lagos is operating with a major structural drag on consumption, productivity, and labour mobility. If Lagos wants faster growth and better employment outcomes, it cannot leave rents to grow unconstrained while incomes stagnate.

The policy implication is not a simplistic call for rent control everywhere. It is that Lagos must expand affordable supply at scale, reduce transaction frictions that inflate effective housing costs, and align planning, infrastructure, and transport investments so that workers can access jobs without paying a proximity premium.

In practical terms, the economy improves when more households move from spending 50–70% of income on rent toward an affordability band that allows normal consumption and savings. Until that happens, Lagos will continue to face an avoidable growth penalty: a megacity where the rent bill quietly eats the demand that businesses need to expand and the jobs that residents need to survive.

• Ayodele Adio is the founder of fair housing and a media executive

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