I've seen up close the result of what you advocate in early post-Soviet Riga in 1998. ALL the real estate was in horrific condition. Larry Summers' aphorism about incentives, that no man ever washed a rented car, explains this. The decrepit 140 square meter (1530 sq ft) three bedroom apartments we bought in central Riga for $40k each were Soviet communal apartments housing two or three families each. They were all happy to take the cash and buy apts outside the center of Riga.

I renovated my apartment for about the same as it cost to buy. There was such a shortage of renovated western standard apartments that I could rent it for 1100 euros/month to a German diplomat. Mortgage rates were 18%, so there were almost no non-cash buyers.

We added value by increasing the supply of renovated housing. We, and many other early post-Soviet foreigner investors, were welcomed in a capital-starved country that communism had impoverished (In the 1930s independent Latvia had a GDP per capita similar to Denmark's). The collectivist Soviet system destroyed value by not maintaining formerly beautiful art nouveau apt buildings or anything else. The lesson: not for profit = not maintained.

If the law you advocate ever passes, real estate investors will merely access credit from non-bank lenders and venture investors. Banning traditional mortgages will merely drive investors to less conventional forms of credit. How do I know? Because of 18% mortgages in Latvia, I bought and renovated real estate with cash advances on American credit cards with 6-12 month promo rates and juggled my way through multiple cards at rock bottom promo rates for 4 years.

You can't uninvent securitization--packaging loans into tradeable securities. Financial innovation is like water flowing down a hill. If you block it in one place, the water just flows elsewhere. But it continues down the hill.

Had the CIA paid attention to how the Soviet system that spent 15% of GDP on the military had starved real estate of all maintenance, the US could have saved a fortune in Pentagon spending.