I want to begin by pointing out that I respect Dr. Sugrue's work greatly and use it in my teaching.
However, I am afraid this piece is seriously misleading. While there is no doubt that federal policy -- especially the FHA, Fannie Mae and Freddie Mac , and the home interest deduction - led to overall increasing homeownership rates during the 20th century, the article provides much too much credence to the conservative canard that such programs (and policies like the Community Reinvesment Act) led to the mortgage and foreclosure crisis. These programs were generally consistent with stable, risk-limited homeownership for more than 60 years with relatively limited systemic problems. In fact the problems that did exist were usually in the form of discrimination and redlining (partly evidenced by Dr. Sugrue's Origins of the Urban Crisis book).
But the problems since the middle 1990s - including the current foreclosure crisis - were caused principally by deregulation that began in the 1980s and more recently. These led directly to high risk securitization and subprime lending typically through unregulated channels. Also, critically, there is ample evidence that loans encouraged (NOT compelled) by the Community Reinvestment Act (of 1977 NOT 1976) were NOT subprime loans and performed much better than subprime loans (see recent piece in the American Prospect by Ellen Seidman for a review of this evidence). Fannie Mae and Freddie Mac were major investors in subprime secruties (and should not have been allowed to be), but a relatively small fraction of their own lending activities were high risk and this activity lagged the major boom in high risk lending from 2003-2006.
Finally, comparisons to Europe are oversimplified and misleading. Most European countries have heavily subsdidized or social housing sectors where rental or cooperative forms of housing are state-supported. In the U.S., rental housing subsidy is extremely limited. Pulling back on homeownership subsidies ACCOMPANIED BY corresponding support for rental or coopeative housing would make sense BUT FOR two problems. One, it is very unlikely that Congress would provide such support. And two, local governments routinely zone out or limit rental or non-ownership housing making it difficult to provide in reality. These problems would need to be addressed to shift housing support to rental or cooperative housing. Otherwise, housing costs will rise, and those with modest incomes will be hurt most.
It is critical to get these issues right
It is also worth noting that for low income people, rental housing is more heavily subsidized than owner housing. I don't have a problem with this per se, but it hardly suggests that government resources have been poured into making low income people homeowners. Indeed, Fannie and Freddie's record for funding underserved borrowers was not particularly good, and the mortgage interest deduction is of little value to low income households, because they usually don't itemize, and even if they do, the marginal benefit of the deduction is quite small.
Finally, let's not be so eager to bash homeownership. Security of ternure does provide stability that can lead to good outcomes for families and neighborhoods. Even in the presence of controls, kids of owners do better than kids of renters, and owners are more likely to be civically engaged, almost certainly because they are equity holders in their communities. Amortizing mortgages, moreover, give people a default mechanism for saving. Richard Thaler has shown that such defaults are crucial for getting people to actually put away money and accumulate wealth. This might suggest that interest-only and option-ARM loans should be put to rest, but that is a separate issue from tenure per se.