Very good point. I have thought for a long time that the whole fake economy where people seem able to buy things they can't actually afford must backfire in some way. And so it does.
Maybe solution is change in legislation that will scrap the mortgage industry, and make sure people buy properties in cash, or not at all? For example, don't make mortgage interest tax-free, enforce harder criteria for mortgage takers (like, no mortgage loan can be for over 50% of property value or 100% of pre-tax annual income of the buyer's household?). Yes most people will become renters for life, as they are in Europe, but at least this problem will be solved.
How will it solve this problem, really? This will funnel money into the hands of landlords. A lot of people will lose the only equity that they have. Wall street will get even more money to blow away...
What you call fake economy is actually pretty real, yes its maybe not used responsibly by a lot of people. But lets remember this: while a lot of rural folks are feeling the pain (quite literally, looking at the opiod epidemic) the American economy as a whole is doing pretty fantastic. A ton of people are comfortably building equity in their homes.
> A ton of people are comfortably building equity in their homes
IMO, this is exactly the root of the issue though. You can't bring your home with you when you move. Having your only major equity stored in an illiquid and immobile asset is extremely constraining.
I am sympathetic to the idea of wanting to own a home. I'd like to afford owning one myself one day! But we can't keep pushing housing costs higher and higher on mountains of debt that keep people chained to their property. Maybe getting rid of the interest reduction or enforcing more stringent mortgage conditions aren't the solution, but I think that somehow we have to get the price of housing to go down (and IMO there's no single solution; it's going to involve a combination of zoning reform, mortgage and financing reform, tax reform, and some sort of compensation for dropping property values for people who don't have savings apart from the value of their home).
Maybe solution is change in legislation that will scrap the mortgage industry, and make sure people buy properties in cash, or not at all? For example, don't make mortgage interest tax-free, enforce harder criteria for mortgage takers (like, no mortgage loan can be for over 50% of property value or 100% of pre-tax annual income of the buyer's household?). Yes most people will become renters for life, as they are in Europe, but at least this problem will be solved.