It is basically the billionaire/ unrealized gains argument.

I can take a loan against or collateralized my home value.

I can have greater operational flexibility if I know I have a deep financial backup.

There is something to it, even if overstated

You're making a valid point, but not in favor of taxing owner-occupied homes, but in favor of treating collateralized homes as commercial property. I'd be okay with that as long as the basis for taxation is the volume of the mortgage.