Mortgage interest deduction and whether or not it's "good"

This article does a pretty good job of outlining the facts. They sort of gloss by the most important points, however. But they do clip against the edge of it

"It does not subsidize homeownership. It does something else," said Andrew Hansen, an associate professor of economics at Marquette University. "It's more valuable for people at the upper ends of the income distribution. They're not at the margin between renting and buying. They're between buying something and buying something bigger."

Because you can only claim the mortgage deduction if you itemize, you need it to be big to matter. So it does very, very little to incentivize the more low level home-ownership that everyone presumes it helps. It does, however, have a disproportionate impact on purchasing decisions for higher income individuals (particularly if they look at marginal utility of dollars). Additionally, because it's uncapped, it effectively subsidizes high cost markets (California and New York City region being the biggest examples). Lastly, the thing it hinges off of (and therefore the thing it incentivizes) is the LOAN... Not the ownership.

If we REALLY want to incentivize home ownership, give everyone who owns a home a $5,000 above the line deduction (i.e. one that doesn't require itemization). Effectively expanding all of their brackets upwards by $5,000 for owning a house. That's roughly equivalent to the mortgage deduction for a ~$100,000 mortgage although it will scale better for people as they begin to own their homes free and clear and will still disproportionately benefit high income individuals (no real way to avoid that and it's fine from an economics stand point).

If we want to incentivize home OWNERSHIP... then we should actually incentivize OWNERSHIP. No reason that people should be encouraged to leverage to get the benefits. And there's absolutely zero reason why our tax code should exacerbate market imbalances (as it does now by providing incentives for buying bigger and bigger homes).

Note: I understand and am willing to accept that this may crater the high end mortgage market. I think that's a market which is vastly overbuilt (in large part BECAUSE of this tax scheme) and which we should not CONTINUE to inflate because it will make the inevitable "burst bubble" even worse.

Note #2: I offer this up not even necessarily as a revenue raising objective. I'd be fine, conceptually, with picking a number that would result in revenue neutrality. I don't think it's necessary, per se, to go that high. But my goal is to point out that we're incentivizing the wrong thing (high leverage) at the expense of the thing we purportedly WANT to incentivize (home ownership).