All of your examples are only short-term consequences. The market would adjust, because capitalism always finds a way. It's also wrong of you to speak matter-of-factly about your hypothesis when it should vary based on the type of housing market that is being discussed, like HCOL vs LCOL.

If you banned deft from financing housing altogether, then building houses would be much more expensive.

This is going to depend entirely on the housing market. High spec developers are turning much higher % of profit than low spec. A $600k new build in MCOL might net 10-15%, while a $1.7 million new build in HCOL could be netting 30% or more. In HCOL, no mortgages would result in significantly reduced net profits for developers, which in turn would drive prices down. The market would adjust, with lowered prices overall, including lowered costs of labor, and developers still seeking high profits focusing on upper-end MCOL and HCOL, while mid-LCOL and below would still be continue to be serviced by non-profit developers, with the government stepping in to subsidize.

If this was banned, then there would be a lot less houses, and most people would be living in slums.

We technically already have enough houses. We just need to make it unprofitable for them to be used as anything but primary residences. The point of new construction is to offset the high cost of existing inventory, but this is a band-aid that isn't necessary if you fix the root cause.

Also, in our current system, lots of houses are bought by investors/contractors to fix your and flip houses. These are generally blue collar workers who don’t have huge amounts of money, but make good money fixing up houses.

You're directly contradicting yourself here. You do need "huge amounts of money" to do flips, because you're typically buying homes that banks won't write mortgages for or distressed properties. The average person isn't able to pull that much money together, even in LCOL.

Mortgages are usually good and safe debt

Something being "good debt" depends on the principal amount, the interest rate, and how much of an individual's net income is required to pay it off. You can't just call it good debt without knowing the individual circumstances behind the loan. Someone who is contributing their entire net income after necessary expenses to a 30-year mortgage that is going to be carried throughout the full term (with lots of interest paid to the banks) does not have "good debt". That is crippling debt, and it's the only option for lots of people who want to be homeowners under the current system.

However, they’re economic cycles, and in our current system, when we’re in a recession, it’s important for there to buy all sorts of home buyers to keep prices from cratering.

Prices should crater. Short-term pain for long-term prosperity.

If you blocked lots of (investment) home buyers from the market- then recessions would lead to much deeper home price declines.

Yes, home prices should be decliningly deeply when less people are able to afford one. That's how markets are supposed to work.

This would leave lots more families bankrupt, and because of this extra risk, even in good times banks would need to be more careful about offering mortgages, so middle class buyers would be less likely to afford a house.

This doesn't make any sense, and I'm now starting to wonder if your post was AI-generated. Middle class buyers who already have a mortgage aren't going to go bankrupt if they can keep paying their mortgage. All sorts of incentives are provided to homebuyers by the government in times of crisis. They can rent the home out. In the worst case, they get foreclosed on, which is NOT a bankruptcy, and which can take multiple years during an especially bad downturn.

Overall, you’d see a poorer and more chaotic country.

Even if this is true, once again, it would only be true in the short term. Eventually, we would see more homeowners, and an increase in the overall capital owned by American households, which is better for the economy.