BANKERS, frauds, predatory insurers: there has been a stampede to punish the villains of the global meltdown. Yet one culprit is not only rarely seen as an offender, but is also being cosseted and protected. Governments' obsession about home ownership has contributed as much to the meltdown as any moustache-twirling financier.

The bust began in America's housing market and soon spread to government-sponsored institutions created to increase home ownership, Fannie Mae and Freddie Mac. Part of the problem came about because of policy. In most rich countries the state subsidises private housing. Some places (America, Ireland and Spain) give tax relief on mortgage-interest payments. Others, such as Britain, eliminate or lower the tax on capital gains from sales of someone's main house. Still others use state-backed outfits to direct credit to housing or to make it easier for first-time buyers or the poor to buy their own homes. Subsidies are not to blame for everything—the housing bubble affected a range of markets regardless of how much they were subsidised—but the distortions aggravated the boom and bust by making housing artificially attractive.

Governments subsidise home ownership because they think it encourages stable, more law-abiding neighbourhoods. The children of homeowners do better at school than the children of renters do. Homeowners are more engaged in local democracy. And, because homeowners must pay off their mortgages, housing supposedly encourages people to save more than they otherwise would.

Yet as our article argues, the benefits of subsidies have proved smaller than expected and the costs much greater. Home ownership may indeed instil neighbourly stability (though Germany with its high levels of stability and renting suggests the two need not go together). But who said local stability was so desirable? A stable neighbourhood may be one in which people refuse to move in search of jobs.

Government backing sucked money into housing, boosting prices. Since millions use their homes as collateral for general loans, the house-price boom also exaggerated the consumer boom while it lasted, and amplified the bust when that came. Perversely, public policy even undermined the very things governments were trying to encourage. Housing policy aims at boosting savings. Yet home-equity loans and “negative amortisation” mortgages boosted spending.

Battering-ram required

In their efforts to stem the financial crisis, governments have thrown money at everything, including housing. Some of this is justified, but they are making their ultimate task harder. The state should in the medium term be aiming to slash subsidies for housing. That means, in America, cutting the size of the loan on which people can deduct mortgage interest from $1m now to, say, $300,000 and ideally to zero. There is no argument for a tax break worth, in practice, ten times as much to the rich as to the poor. Countries should start phasing out the unlimited capital-gains tax advantages given to houses—which people treat partly as an investment. And any government weighing whether to create institutions to boost home-ownership should take note of the disasters elsewhere.

A homeowning democracy is a bulwark against an overmighty state. Yet all those subsidies produce not just bloated home ownership, but dependence on public handouts.