Interest write off deductions- Is real estate over subsidized?

Mortgage debt write-off serves a great purpose, to encourage home ownership and potentially make home ownership more affordable. Unfortunately, it has not worked out this way, as people have taken into account the money saved from the interest write-off to justify paying more and more for the home and taking larger and larger loans. The amount allowed for mortgage interest write off should be capped at $417,000 for a 2 person household and tiered based upon number of dependants with an overall cap of $555,000. All of these numbers should be adjusted for inflation using 3%/year for the history of the legislation. For example,Household

Size Cap

2 $417,000

3 $458,700

4 $504,570

5 $555,027

In addition, smaller caps should be placed in particular zip codes based upon income tax data from those zip codes. For example, if a zip code has an average income of $100,000, the interest write should be $100,000 x 3 (or 4,5) – 20%= $240,000. In this case mortgage interest would only be allowed to be deducted on $240,000 worth of a loan. Of course, this legislation will encourage more equity, and help to prevent some of the out of control price increases we saw recently that moved the dream of home ownership out of the grasp of many responsible potential home buyers. Of course this is not the time to put this type of legislation into affect, however, this legislation should be phased into action in a set date in the future ie. 5 years. In addition, this has potential to create more tax revenue and acts as a type of luxury tax on those buying above average homes using leverage. The interest write off cap should be limited to principle residents and should not affect investment properties so that it does not discourage investment.