We have a similar system in the US, though perhaps slightly more flexible. I've always found it to be a bizarre subsidy for those who can afford large homes. People in small apartments generally have no option but to have living space and work space completely overlapping.

With the recent tax law changes, though, I believe a majority of people end up taking the standard deduction because they can’t come up with enough itemized deductions to exceed that. The inability to fully deduct state taxes is a big one, for example.