It’s hard to find fault with the policy pursued by the previous two presidents of making homeowners out ofmore Americans. Having a place of your own is a cherished dream in this country. Many immigrants come here just for that reason. Plus, study after study demonstrates the positive impact that homeownership has on well-being, education, and family values.

But now we have dramatic, painful evidence that we can go too far promoting homeownership. We created owners out of people who couldn’t afford a home, at least not under the direst of economic conditions. And as foreclosures escalate, the neighborhoods where these unfortunate people live are in decline. In extreme cases, blighted homes and neighborhoods are being bulldozed.

Many people who lost their homes to the bank should have remained renters. Their credit shattered, they won’t be back in the home buying market for a long time. And their homes—being sold by banks for about $90 a square foot this summer, compared to a national average of $140 per square foot for new homes—make it next to impossible in some markets to pencil out new projects.

Against this backdrop, it’s no wonder that federal policymakers now talk of a more balanced housing policy, one that also considers the need for rental production and assistance for low-income Americans. It’s hard to argue with this approach, given surplus inventory of existing homes for sale, and a shadow inventory that banks and investors will unload once market conditions improve.

As the country faces record budget deficits, the entire housing finance system is now on the table: the industry’s cherished mortgage interest deduction, to the GSEs, to FHA financing. It’s hard to imagine just how bad the housing recession would have been without these institutions. It’s equally hard to imagine that they won’t be “reformed” in some fashion since they played such a big role in the housing boom and bust.

Meanwhile, the country’s homeownership rate continues to tumble—how far it falls is anyone’s guess. As measured by the Census Bureau, homeownership peaked at 69.4 percent in 2004. By the second quarter of this year, it had fallen to 66.9 percent, and it’s poised to drop lower.

A recent report from the Federal Reserve Bank of New York concludes that the effective homeownership rate is actually 5.6 percentage points lower. That’s after taking into account the many people who are underwater on their home loans or in the foreclosure process. The country’s effective homeownership rate may be in the 61 percent to 62 percent range, a level we haven’t seen since the 1960s.

Seemingly lost in all the debate over housing policy reform is the fact that the U.S. continues to add more people, a trend that’s expected to continue for several decades. By 2050, according to author Joel Kotkin, the U.S. will have added another 100 million people, bringing its population to 400 million. Where are they going to live and in what kind of homes?

Another problem facing the country is that, even though home prices have plummeted and mortgage money is cheap, housing remains unaffordable for many people. Income levels for all but people 55 and older fell during the 2000 to 2008 period. Since then, record unemployment has depleted many savings accounts. And the plunge in home values has wiped out billions in homeowner equity.

Homeownership can’t become a bastion of the wealthy.

The outcome of upcoming federal housing policy debates will no doubt have a huge influence on what builders build going forward. This much is certain: We’re going to need more decent, affordable housing, whether it takes the form of a detached home on a half-acre lot, a condo in the suburbs, a rental apartment in the city, a mobile home in exurbia, or a homeless shelter. There will be plenty to do.