A "Foreclosure Society"

It's hard to defend the home mortgage interest deduction, but if you're so inclined, feel free to try:

A tax break that is breaking us, by Edward L. Glaeser, Commentary, Boston Globe: The latest Case-Shiller housing data suggest that housing markets have now stabilized. ... This stability makes it possible to move beyond stop-gap measures and to envision fundamental reforms that will make the next housing crisis less damaging. Lowering the $1 million cap on the home mortgage interest deduction is a good place to start. ...

I’m not claiming that government policies, like the mortgage interest deduction, caused the bubble. The deduction is an old policy that has remained a constant in good times and bad. Moreover, the bubble can’t be explained by low interest rates or easy mortgage approvals or high loan-to-value ratios. The historical relationship between these variables and housing prices is just not large enough to explain either the boom or bust. America’s great housing convulsion is best seen as an enormous, almost inexplicable whirlwind that was created by ebullient, but incorrect, beliefs about never-ending home price appreciation.

But while government policies cannot be blamed for the bubble, they did exacerbate its damage. For decades, the home mortgage interest deduction and government-subsidized institutions like Fannie Mae and Freddie Mac have made mortgages artificially inexpensive. This subsidy encouraged homebuyers to borrow like mad and tie their fortunes to the housing market.

During the boom, these policies were thought to lead Americans to accumulate housing wealth and create an “ownership society.’’ We now know that encouraging people to borrow to buy homes can just as easily lead towards a "foreclosure society"...

The home mortgage interest deduction also subsidizes Americans to buy bigger homes... In an age of global warming, why should we subsidize the greater energy use inherent in larger homes? There is a powerful connection between structure type and ownership, which means that encouraging homeownership implicitly encourages sprawl..., which is bad for cities, bad for traffic congestion and bad for carbon emissions.

The mortgage interest deduction is also extremely regressive. ... Now that prices have stabilized, we can imagine slowly leading this political sacred cow towards a good stockyard. The interest deduction currently has an upper limit of $1 million. That limit could be reduced by $100,000 per year over the next seven years, which would lead to a less regressive $300,000 cap. After that point, we could consider replacing the interest deduction altogether with a flat homeowner’s tax credit that would encourage homeownership without encouraging borrowing or big houses. ...