The reform of U.S. housing finance proposed by President Obama will drive the price of mortgages higher and be a disaster for house prices, construction and the real estate industry.

In other words, in helping to kill the illusion that a whole nation can grow rich by living in ever more expensive houses, it will be a very good thing.

The U.S. released a range of proposals for scaling back government involvement in housing last week, all of which are aimed at transforming a mortgage market in which 92 percent of new loans currently carry a government guarantee.

In addition a budget proposal from the Obama administration on Monday included a call to cut across the board by 30 percent a range of tax exclusions for better off Americans, including the mortgage interest deduction so long considered sacrosanct.

The proposal for housing finance reform from the U.S. Treasury Department includes three scenarios for debate, all of which include the gradual winding down over a period of years of Fannie Mae and Freddie Mae, the government sponsored mortgage companies which had to be taken into public conservator ship as losses mounted.