The proposal I have seen elsewhere is to replace the mortgage interest deduction with a refundable tax credit capped at some fraction (perhaps 40%) of the media

The proposal I have seen elsewhere is to replace the mortgage interest deduction with a refundable tax credit capped at some fraction (perhaps 40%) of the median housing cost. That way it would be equally valuable to the rich and poor, and would not encourage people to take out high-interest mortgages. It would still be a distorting force pushing housing prices up, but it could be phased out gradually (perhaps over 30 years) if necessary. I also very much agree with your point that the main cause of high housing costs in the US are poor planning and zoning.