Consider the current regulation that exists over the housing market:
- Mortgage interest deduction: In other words, you don't get a tax break for buying a house, you get it for being in debt b/c you bought a house. Hmm.. what incentive does this create?
- One time capital gains tax exemption for the sale of a home: This encourages people to sell their home and then buy a more expensive home, even if a less expensive one would have sufficed.
- The implicit federal bailout of Fannie and Freddie: These companies underwrite a lot of the more risky mortgages and as long as there is an expectation that the government will bail them out, nobody looks too closely at their soundness.
These are the regulations that got us into trouble in the first place.
Now is the time for less regulation, not more!