For generations, the government has encouraged more homeownership. It's supposed to help people save and get out of poverty. But "it didn't work," says David Wessel, economics editor at The Wall Street Journal.
"We went as a society where 65 percent of the people owned homes, to one where nearly 70 percent of people owned homes, and it turned out many of those people in that last bump couldn't afford the houses," Wessel tells NPR's Steve Inskeep.
"So now we have a system where a lot of people own homes but don't have any equity in them, which means you don't get any of the virtues of investing in them," he says. "And the government has been forced to take over the mortgage financing system, which suggests that it wasn't a very strong one if the government has to take it over."
The question now is what to change, and how to create a stronger mortgage finance system. Should the government encourage people to rent?
"Why doesn't the president of the United States ever get up and say, 'You can be a full-fledged American citizen and rent an apartment -- it's OK,' " Wessel says. "That's not what presidents have traditionally said."
How about doing away with the mortgage interest tax deduction? Canadians don't have that tax break, and as a result, they're encouraged to pay down their mortgages more quickly.
Doing away with the mortgage interest tax deduction "is one of those things that economists talk about and politicians just aren't going to do anytime soon because it's so popular," Wessel says.
Americans save $100 billion a year as a result of that deduction, he adds. Doing away with it would encourage people to put less of their money into housing and more into other parts of the economy, Wessel says.
The government is busy tweaking the mortgage finance system rather than overhauling it.
The financial regulatory reform bill making its way through Congress will create a new consumer finance agency that tightens rules so mortgages aren't so easily given to people who can't afford them.
But, Wessel points out, the financial regulatory reform bill doesn't deal with the big, bailed-out mortgage finance agencies Fannie Mae and Freddie Mac, which have been the biggest cost to taxpayers.
In others countries, such as Canada, Spain and Ireland, people own a lot of houses but the government doesn't subsidize homeownership as much as it does in the U.S.
"So the question is, can we get as much homeownership without the government spending so much money to get it?" Wessel says.