Secretary Alphonso Jackson Speaking
And believe me, I am here to learn. The problems of housing are complex and defiant. They are intertwined in problems related to economic development, population growth, the environment, infrastructure, transportation, health, water, what we call urban sprawl, and property ownership, just to mention a few issues that accompany our discussions.
And housing is about personal finance, government expenditures, and international investment. We know that homeownership can be a personal source of wealth and financial security, as equity builds over the years. You see that right here in Macau, where property prices are booming and the value of homes and buildings is increasing rapidly. And, as you know, Hong Kong is a financial force of nature, with property values among the highest in the world.
We know that domestic investment in housing is now a major part of any country�s gross domestic product. We have seen a rapid rise of housing values in the United States. There home equity has grown from $6.6 trillion in 2000 to $10.9 trillion in 2006, a 66 percent increase over 6 years. In the United States, home equity is about 7 percent of GDP � 20 percent if you include housing services.
And provision of housing is increasingly challenging. We know that affordable housing is in short supply in many countries. As property values increase, many people are simply priced out of the market. We see our service providers � teachers, firemen, policemen, restaurant workers, and transportation workers -- pushed out of some communities, and then forced to spend more time and money commuting to their jobs from father and farther distances.
Add to that another problem -- the migration to cities, which started in the late 1700s and early 1800s in Europe and the United States, as a product of the Industrial Revolution. Now it is a global phenomenon. More and more people come to the cities, looking for opportunity and employment. Despite efforts by many countries to regulate and control this flow of people, they still come, cities continue to grow, overwhelming our resources, our planning, and even our projections. They come in larger and larger numbers, a powerful flow of people magnetically drawn to the cities.
We cannot ignore this problem. People need to be properly housed�they should not be forced into slums or poverty-ridden enclaves. We must find a way to integrate more and more people into the city, to make them a part of the city, and to give them a stake in the city.
And increasingly, the world will turn to Asia for solutions. You will help lead the way into the future. More than 60 percent of the increase in the world�s urban population over the next three decades will be in Asia. The world will be learning from your experiences in Tokyo, Seoul, Beijing, Shanghai, Ho Chi Minh City, Bangkok, Singapore, Jakarta, Kuala Lumpur, Manila, and elsewhere.
Growth management is not easy�it may seem impossible�it may be impossible. But we must do our very best. Housing is central to the human condition. It is vital for everyone. And we must provide solutions that are equitable, just, fair, and comprehensive.
I know there are many ways to do this. And I am very interested in this region�s efforts to address housing and urban growth. I noted with interest the eleventh Five Year Plan released by the Chinese government last year. There was an entire chapter dedicated to urban growth. China is now committed to, and I quote, �coordinated development of large, medium and small cities and towns� and �actively and safely (promoting) urbanization according to the principles of steady and orderly progression, land conservation, concentrated and efficient growth, and rational distribution of cities.� China�s landmark Property Law, passed this March, coupled with broad changes to the Constitution, will better define what it means to own and use property.
In the United States and many other countries there has been an emphasis on homeownership. In fact, President Bush has asked that America become an �ownership society.� As a result, approximately 70 percent of American families now own a home. However, this result has not been evenly distributed between minority peoples and majority whites. Only about 50 percent of Black American and Hispanic Americans own a home, and about 60 percent of Asian Americans are homeowners. So the President has emphasized minority ownership, and in 2002 dedicated our country to 5.5 million more minority homeowners by the end of the decade. Because of this emphasis, we have already increased minority ownership by almost 3.5 million people, so we are more than half way to the goal.
We know that homeownership rates as a whole can rise even higher. Some countries, like Ireland, have a rate approaching 80 percent homeownership. There does not seem to be a fixed ceiling. So, in the United States, we are hopeful that the rates can reach higher and higher.
As we encourage homeownership, we must beware of potential dangers. In the United States, we have witnessed the economic push of sub-prime loans, which helped democratize credit and opened up homeownership for millions of people in my country. But there was a risk. And for about 20 percent of those loans made over the last few years, the risk was realized. But for the other 80 percent, the loans are secure. We witnessed the economic pull of the failed sub-prime loans, which often came about through predatory lending and poor consumer preparation. Many of those in failed sub-prime loans didn�t read the contracts; about half didn�t even call their lenders and tell them of the difficulties.
The sub-prime problems hit as our housing market was making a cyclical adjustment after several years of historic growth. The lower rates of home construction and higher rates of foreclosure were accelerated by the sub-prime problem, giving rise to some headlines screaming of doom. But I want to assure you that those with oversight of the American housing market all agree on this -- that the vast majority of sub-prime loans are sound. Fed Chief Bernanke has been vocal with his views, and I certainly agree with him.
We have aggressively taken steps to address difficult sub-prime loans. We have refinanced many of them through public institutions like our Federal Housing Administration. We have also promoted much wider housing counseling, with 2300 housing counselors in the United States. I am very thankful the President has increased funding for housing counseling by over 200 percent since coming into office. And we have used equity to solve payment problems for seniors through reverse mortgages, which are guaranteed by my government.
Overall, I am of the belief that the sub-prime market can actually be a good thing. It allowed for the creation of a new class of homeowners, as long as people act responsibly. I agree with Confucius, who counseled that �the cautious rarely make a mistake.� As we explore new credit options for potential homeowners, we must be vigilant in educating them. We must make certain that the loans are affordable. Nationally and internationally, we must be on guard against predatory lending. It is nothing more than a scam, a crime, a lie. The loan process must be transparent and understandable. I see much merit in programs that help poor-and-middle class buyers with help on down payments or the cost of purchase.
The sub-prime market helped contribute to an historic boom in American housing. I think we can learn from this experience, find out what worked, and use that information, while minimizing the exotic, unaffordable aspects of the sub-prime revolution.
Worldwide, the wind is blowing toward homeownership. You see it blowing in Thailand, the Philippines, South Korea, Japan, and elsewhere, even here in Macau and Hong Kong. In the future, we could even see it blow across China, from the coast to the Himalayas, to the west, and to the Mongolian deserts. And it would be a powerful wind, generating unprecedented wealth and opportunity.
Of course, part of our success in the United States is due to investments by your countries in mortgage-backed securities. We know that international investment in housing has become a positive, powerful part of the United States economy. By tapping the global capital market to provide financing for homeowners, the mortgage-backed securities market contributes to lower mortgage rates in the United States. And it�s been a good investment for Asian countries, too. A true win-win situation.
Much of this investment has come from Asia. Most of this investment has been in U.S. Treasury Securities. But now there is a growing investment in mortgage-backed securities. Let me give you an example. In June of 2003, Chinese investors held less than $3 billion on Agency Mortgage-Based Securities. But in June 2006, just three years later, that number had risen to $107 billion. Chinese investors hold more Agency Mortgage-Backed Securities than investors from any other country.
They are a sound, solid investment, a win/win situation for the investors and for the American people. These securities are attractive because they have no credit risk and are backed by the full faith and credit of the U.S. Government. Also, most Agency Mortgage-Backed Securities even have a higher yield than the Treasury Securities.
The positive benefits from these arrangements are recognized by all involved. I know that one agency, called �Ginnie Mae,� which is a United States government-owned corporation within my department, has made increased investment by other countries a top priority. We are talking to investors about increasing their portfolios. We welcome new investment.
In your countries and mine, citizens are restless consumers. They want to find ways to increase wealth and expand purchasing power. One scholar has said that, globally, our citizens are leading us into an age of �post-modern government,� where people want government to give them more information, more choices, and more economic power.
I know from my own experience that citizens expect cities that function properly and competently. They want vibrant, inclusive, crime-free, and economically-thriving cities, which will become places of art, culture, education, and compassion. Our citizens even want more than that�they want us to get ahead of the curve, to become proactive, to anticipate problems and prevent them. In an age of technology, the Internet, and a wired global village, our citizens are increasingly impatient. They want solutions now, and the best solution is one that removes problems from the horizon, long before they happen.
Our citizens expect good governance, transparency, competence, and vision. And they want it now. In this century, we must be committed to meeting the needs of our citizens as never before, and to do this by involving the entire community. We must include advocacy groups and community organizations in our planning, deliberations, and implementation. We must construct workable and inclusive partnerships that help us best meet the needs of our citizens.
And I believe homeownership is an important part of the future. Homeownership gives people a stake in the community, a piece of the community. It is their home�to maintain and develop. It is their place to live, a place of relaxation, recreation, and solitude. It is the place of privacy and tranquility.
And homeownership is a place for wealth creation, for most of us our most important and successful investment. I have often wondered what would happen if 70 or 80 percent of families in Asian countries owned their own homes. I personally believe the wealth creation would be staggering, shocking�off the charts.
So I am very interested in efforts to promote homeownership in countries like China. I know some steps have been taken which are very promising. I personally believe that these efforts will generate further large rates of economic growth in China and lead to even greater social stability.
And as this happens, as the future unfolds, we will continue to meet in forums like the Asian Real Estate Society. For here we will share our common goals and needs, and glimpse the future. We will help make the future better for citizens in our own countries and around the world.
Thank you again for inviting me.