I remember reading somewhere an analysis that concluded, (in steady state conditions, unlike the bubble implosion we are in now), eliminating mortage deduction may reduce the home ownership and home prices by about 20-25%. Another loophole is the tax free gain of $250K/$500K every 2 years that enhances the gain of home buying vs. other risks like stock/bond etc., investing that is taxed @15% long term rate. Net result is massive over allocation of capital towards housing stock to the detriment of other more productive investments. The craze of McMansions is a drain on land, building materials, energy, promotes illegal immigration, urban sprawl, induces people to assume needlessly large debt in turn causing rat race like lifestyle to pay for it and generally lowers quality of life.
