I have always thought that government policy to encourage home ownership was counter-productive, even beyond its role in creating bubbles. My sense is that those who advocate for such programs are engaging in what I call cargo cult economics.
Once upon a time, government officials decided it would help them keep their jobs if they could claim they had expanded the middle class. Unfortunately, none of them really understood economics or even the historical factors that led to the emergence of the middle class in the first place. But they did know two things: Middle class people tended to own their own homes, and they sent their kids to college.
So in true cargo cult fashion, they decided to increase the middle class by promoting these markers of being middle class [without any consideration of which direction the arrow of causation ran]. They threw the Federal government strongly behind promoting home ownership and college education. A large part of this effort entailed offering easy debt financing for housing and education.
I tend to be a lone voice in the wilderness on this (even those who oppose government programs for libertarian reasons often tend to fetishize home ownership). But Ike Brannon at Alt-M seems to agree:
The pro-home-building folks aver that homeownership fosters civic involvement and helps people become more tied to their community, which encourages other behavior beneficial for the economy. And for a good proportion of homeowners the majority of their net wealth is in their home, so it can be an important source of savings.
But another way to look at it is that correlation is not causation: The reason that homeowners are more civic-minded and involved in the community is because such people are much more likely to have the wherewithal to save enough to make a downpayment on a house. Ed Glaeser, the renowned housing economist from Harvard, puts little stock in the notion that homeownership has significant positive societal externalities.
What's more, there's some evidence that high homeownership rates have downsides as well. In the last four decades the predilection for moving has slowed significantly: only half as many people moved across state or county lines in any year this decade as was the case in the 1950s, for instance. This is problematic because it means that our economy is worse at matching up workers with where the available jobs are. The lingering unemployment in many rust-belt states would be less if some of their unemployed could be persuaded to move to another community where there are jobs. There has been a decades-long move of people from the midwest to the Sunbelt, of course, but the data suggest there's ample room for more. This hasn't happened in part because people are tied down by the homes that they own and are reluctant to sell while they are underwater. That people are unable to ignore sunk costs isn't economically rational, of course, but it nevertheless governs how many people consider whether to move.