Also, I think the homeowner's interest deduction shouldn't exist in the first place. We are not allowed to deduct countless other basic living expenses, and plenty of people live and pay interest on houses that go far beyond what could be considered a basic living expense.
The mortgage interest deduction (MID) serves to put the purchase of owner-occupied housing on a more equal playing field with commercial landlord owned housing. How so? When a landlord buys a house to let, the interest on the loan is deductible as it's in service of an income generating business activity. If a landlord's interest is deductible, but an owner-occupant's interest is not, the tax code favors buy-to-let.
When you hear people arguing that more people should own, it's a good way to build equity (or at least a forced savings vehicle), that some of the reasons for the household wealth disparity across various groups is home ownership rates, etc, the elimination of the MID probably works directly against increasing home ownership.
I think there are valid public policy reasons to support home ownership at least to the extent of putting such purchases on a level playing field with landlords who might be interested in bidding on the same property.
Sounds like we've got two different angles you're taking here to argue in favor of the deduction, so I'll address them separately.
1 - Giving homeowners parity with landlords and real estate holding companies.
As well all know businesses deduct all expenses from their revenue to arrive at their net income, which is what gets taxed. We don't get to deduct other basic expenses from our income, even necessities like food and clothing. I believe offering households $24,000 as a standard deduction levels that playing field quite well (it's actually quite close to the MMM budget which we can generally be thought of as standard base living expenses). The only families who would be better off deducting their interest would be ones who have a mortgage on a luxury property - and there's no good reason to give them tax incentives to live in luxury.
Or is there?
2 - Encouraging/incentivizing homeownership is good for the economy and society.
I would agree that homeownership is good for the economy and society. I just don't think the tax deduction factors into the decision to buy as much as other factors (family growth, desire to build equity, school districts, dissatisfied with renting, interest rates, increased job security, etc).
I don't have a big problem with incentivizing it, except that I find it unfair to renters - who are often disadvantaged economically in the first place. Business are able to deduct their rent (if they don't own real estate) or their interest (if they do), but homeowners are only able to deduct their interest if they own. When I used to rent, I remember getting a letter from my landlord that allowed me to deduct a couple hundred off my taxes. Woo hoo. I think it should have been 100% of the rent I paid, or nothing (if we had been using a $24,000 standard deduction.)