I'd be willing to bet that if we eliminated the home mortgage interest deduction completely it would barely move the needle of what homes people choose to buy or the number of renters vs. owners.
I would love to see the numbers, though.
I would love to see the numbers, though.
This is kind of like municipal taxes. Take the city of Cambridge in Mass, which has an absurdly low tax rate. Compare it with some of the cities near by (eg Somerville). A similar property in a similar location will bring you down roughly the same amount per month. But in Cambridge, the value of the property itself is way higher, mainly because less goes to the city and more goes to the bank (and your equity).
People factor in the deduction when they check what they can afford. If you save 12k a year in taxes, you can pay 1000 bucks a month more, which translates in a significantly more expensive property. If the deduction goes away, property value will adjust accordingly (blips down at first, maybe go up a little slower for a bit until things even out considering inflation and stuff).
People who currently have a property and cut it a little close might be in trouble if they are not grandfathered, and people selling in the short term might be a little sad.