The discussion on rortybomb continues, so I thought I’d add some more thoughts.
As humans, we are effectively short food and shelter for the rest of our lives, and you could probably add in insurance/medical care. (I think Mike at Rortybomb made this point a while ago, but I couldn’t easily google it.) That means that we need to somehow structure our earnings, consumption, and investment to satisfy those expected needs (future payments), bearing in mind that in our later years we’ll be doing very little earning and investing, and lots of consumption.
However, we have a choice on how we satisfy those needs. One way is to prepay them while we are working, which is what one commenter suggests for our housing needs:
My view of the housing market, and why I think a lot of this anti-housing as an investment is silly, is that it’s a consumption good you will always need to consume. You’re not going to suddenly decide in 2027 that you might do without housing for a while. On that basis alone then it’s quite sensible to store it up for when you have no income, ie in retirement. It’s an almost perfect hedge of a large chunk of your consumption needs.
The commenter is right in one regard – we certainly do need to store up for our future consumption, when we’ll have no income. However, the choice is not whether to save for the future, but in what vehicle. Specifically, the above comment seems to argue that we should be prepaying for our housing needs. Paraphrasing: “Buy a house now so that you’ll have one when you’re not employed.”
While I certainly agree with the need to save for future consumption, I don't see any reason that we should prepay our housing needs in the form of a single, non-diversified asset with large transactions costs. Similarly, I think we can effectively save for our future food needs without filling our basements with cans of vegetables, soup, and spam. (And beer! Don’t forget the beer. Some, especially stouts and barleywines age very well.)
So the choice isn’t save or don’t save for future housing consumption. But rather, in what form. Putting aside some very important factors (differences of housing types available for rent or sale, other payments like property taxes, maintenance, possible rent increases), it's an economic tradeoff between two different-looking cash flow streams. In the same way that annuities can be easily converted into lump sums (and vice versa), it's straightforward to compare renting (effectively a negative annuity) with buying (a one-time lump sum). It's inappropriate (in my opinion) to imply that buying is somehow different (and better) than renting because of the timing of the payments.
My impression of this debate is that most people arguing for housing as an investment view the purchase of a home as qualitatively better than renting a home (for reasons that are often poorly articulated), while the other side views it as more of a straightforward evaluation of the timing and magnitude of the cash flows.