Economist Ed Glaeser makes a pretty compelling case for phasing out the home interest mortgage deduction.  His key points:

  1. Giving big tax breaks for big mortgages encourages people to leverage themselves to buy more house than they need—which was one of many factors that contributed to the housing bubble.
  2. The interest deduction actually pushes up the price of housing—especially where housing supplies are constrained by policy or geography.
  3. It’s incredibly regressive, giving a much bigger housing subsidy to the well-off than to those of modest incomes.
  4. The mortgage interest deduction encourages people to buy bigger homes on larger lots—which means more resource consumption.
  5. The policy doesn’t actually do a very good job of encouraging homeownership.

The whole thing is worth a read.  And I’ll point out that we’ve recommended the same thing for well over a decade—see, for example, p. 32 of  The Car and the City.