The following remarks were made at the kickoff of the Twin Cities
Neighborhood Housing Services 21st Century Campaign for Neighborhoods,
in Minneapolis last November.
The longer I have been around the Twin Cities, the more I have
come to appreciate organizations like Twin Cities Neighborhood Housing
Services (TCNHS), its accomplishments and the spirit that underpins
its programs. It is in this light that it is a privilege to have
this opportunity to address you, and in thinking about what contribution
I could make to this event, I decided to try to place the issues
of home ownership in our central cities and sustainable community
development in a broader context. I favor this approach, in part,
because we in the Federal Reserve get "paid" to think in terms of
the big picture, and also because intellectually I think it important
to understand how and where various programs fit in a world of scarce
resources and vigorous competition for those resources.
To start the discussion of where a program like TCNHS fits in
the broad scheme of things, it is instructive to review the performance
of the U.S. economy over the past several years. The national economy
is, at this moment, well into its sixth consecutive year of economic
expansion. In general over this period, employment has grown significantly,
the unemployment rate has fallen, and economic conditions in most
sectors of the economy and most regions of the country have improved
demonstrably. Moreover, the period has been characterized by both
modest inflation and modest interest rates.
This performance is remarkable from at least two perspectives.
First, it comes virtually on the heels of the expansion of 1982-1990,
a period of seven plus years of uninterrupted growth. Thus, at the
national level, our economy has grown over 13 of the past 14 years,
an undeniably positive performance and one unsurpassed in the postwar
period, so far as I know.
The second noteworthy aspect of our economic record is that it
has been superior to that of the other major industrial economies
of Europe, Canada or Japan. You can see this by comparing rates
of growth, unemployment rates and so forth. The notion that the
U.S. economic system was in some way, shape or form flawed relative
to those of Western Europe or elsewhere has been disproved by events,
so that concerns that the United States would somehow be left behind
by the 21st century seem seriously in error.
I have placed emphasis on economic growth to this point because
it is growth that ultimately raises standards of living. The way
to think about this issue is to recognize that a country's standard
of living is essentially its output of goods and services divided
by its population. For a given population, or given path of population
over time, the faster output grows the more rapidly living
While discussing the national economy, it is also worth emphasizing
that there is no doubt that in recent years the persistence of modest
inflation and modest long-term interest rates has been positive
for home ownership, particularly among low- and moderate-income
people. This is because of the prevailing, relatively reasonable
magnitude of the carrying costs of a home in comparison with previous,
high interest rate periods. There has also been a "democratization"
of credit in recent years, which means that credit on reasonable
terms is available to a wider range of potential borrowers. The
view, held by some, that fighting inflation is somehow bad for low-
and moderate-income citizens flies in the face of what it has done
for home ownership opportunities, among other things.
These considerations also suggest a cautious response, at most,
to the temptation to stimulate economic performance in the short
run. Depending upon circumstances, and if not handled with a good
deal of care, stimulus may add inadvertently to inflationary pressures
and to increases in interest rates, thereby possibly compromising
some of the objectives it was ostensibly designed to achieve.
But the relatively favorable long-run economic performance of
our economy, accompanied by modest interest rates, nevertheless
has revealed another economic truth that some of us on the "macro,"
big picture side of things originally had difficulty accepting:
namely, that a rising tide apparently does not lift all boats, or
at least does not lift them all equally. What do I mean by this
rather cryptic phrasing? I mean that even a significantly improving
national economyor local economy, for that matterdoes
not address effectively all of our economic or economic-related
problems. To be sure, it is difficult to imagine addressing a host
of economic problems without sustained growth in the economy because,
as I noted previously, growth is critical to improving standards
of living. Without growth, we are reduced to competing for slices
of a stagnant, unchanging economic "pie." But it is equally clear
that growth in and of itself is not sufficient to solve many problems.
Now, I realize that there remains some controversy about just
how well the economy has performed over the past six years or, indeed,
over the past 15. Although this is a fascinating as well as a controversial
topic, I am not going to try to resolve it this evening. I will
say, though, that I think some of the concern about stagnation of
living standards is exaggerated in that it squares neither with
available data nor with reality. The issue has to do, in part, with
how we measure prices, how we measure output and productivity, and
the introduction of new and improved products and services over
What is clear and, I think, noncontroversial is that even as the
national economy has improved and strengthened, some neighborhoods
in our central cities have stagnated or deteriorated. These neighborhoods
constitute in part the boats the rising tide hasn't lifted, or hasn't
And this is precisely where TCNHS and related programs fit in.
They represent a targeted and effective means of addressing some
of the problems left unresolved by the favorable performance of
the national economy. We are all aware of the ongoing needs in many
of our communities, and hence of the need for programs targeted
with precision on these needs.
The record of success of TCNHS is impressive and that, of course,
is the bottom line. In the 20 years since the program began, $68.5
million of housing unit production has occurred in the Twin Cities
as a consequence of TCNHS. This year alone, TCNHS estimates that
it will assist in the production of 300 housing units. Further,
it is estimated that over the past 31/2 years, under the auspices
of the national Campaign for Homeownership, TCNHS organizations
have helped 734 new, low- and moderate-income homeowners in our
This record of achievement has and continues to require contributions
from a multitude of sources. Thus, we find financial institutions,
foundations, local businesses, community groups, local government
and neighbors all part of the successful TCNHS strategy. One of
the attributes of this partnership arrangement, of course, is that
it permits each participant to leverage its contribution. It also
means that programs are not overly reliant on just a few sources
or institutions for success, an increasingly significant and positive
characteristic as the fortunes of various enterprises wax and wane.
As you may know, I am an economist by predilection and training,
and one of the things we economists are fond of emphasizing is incentives.
A little reflection about incentives highlights the overarching
significance of home ownership for the individual home buyer and
for the community in which the buyer resides. I suspect that we
all have been renters at one time or another, and experience has
taught that incentives are substantially different when you are
an owner. When you are an owner, you care a lot more about the property
and are far more willing to deal with maintenance, repair and other
responsibilities that add value. Similarly, I think it true that
as an owner, you have the incentive and, therefore, are in fact
more concerned about the quality of the neighborhood, the safety
and attractiveness of its streets, the availability of services,
the health of its schools and so on. I also suspect that the success
of programs like those of TCNHS which enhance home ownership have
associated positive externalities. What this jargon means, and it
is very important, is that there are spillover benefits that transcend
the homeowner and flow to the community at large in terms of security,
stability and higher property values.
I have in these last few minutes perhaps belabored the obvious, emphasizing
as I have incentives and the value and virtues of home ownership. But,
of course, this was not my entire theme. What I have also tried to underscore
this evening, and what I hope you will bear in mind as we look to the
future of our community and of TCNHS and its programs, is that even if
we are fortunate enough to enjoy a healthy economy, there are boats left
behind that will benefit substantially from targeted TCNHS programs. And
ultimately, because of our intimate involvement in the community, we are
all beneficiaries of TCNHS' success.