My theory on this is that the prices adjust to cancel out the benefit from the tax break. The out-of-pocket expense to the buyer is the same and the general taxpayer is subsidizing a higher price for sellers. It's a cash transfer from taxpayers to established landowners cunningly disguised as a legup for the middle class.

I think the prices must adjust in this way since the supply of housing close to the supply of paid work is limited.

If anyone can point me to a decent analysis of this, I'd be grateful. But this is my pet theory.