Did you account for leverage? I agree with you all the way, however, the top reason it can actually be beneficial to most people is the fact, that they can leverage their money.
Putting it a bit simple, it would mean, that for most people, ncr_(real estate)^t > c*r_investing^t
It all depends where in the world you are, but most places have easier access to loans for real estate than investment, and everything else being equal, the risk is also higher.
There might be this line of thought in wake of the financial crisis, that real estate carries close to or as much as the same risk. It doesn't. It's just not zero, and that is the lesson learned.
The best argument I've heard (and I'm somewhat sympathic to) is to compare home equity with real estate investment vehicles.
1) REIT is a diversified bet on a group of high-grade properties that has positive cash flow, levered with a commercial loan borrowed at 3-4%. It's as liquid as stocks, and managed by someone other than you.
2) Home equity is an undiversified bet on a single residential property that has no cash flow, levered with a retail loan borrowed at 5-6%. It's fundamentally illiquid, and managed by you.
Here is a question: People normally consider it's dangerous to lever your REIT position. Doesn't it suggest that home ownership is actually risker than commonly perceived?
In fact leverage is absolutely required for real estate to even be considered an investment, and not even a good one. The fees, interest, etc are eating all the gains from the leverage.
A leverage also goes both ways. Making the housing investment so much more risky if not well timed.
Houses in Denver for example went down close to 10%. Now imagine you leveraged this...
Putting it a bit simple, it would mean, that for most people, ncr_(real estate)^t > c*r_investing^t
It all depends where in the world you are, but most places have easier access to loans for real estate than investment, and everything else being equal, the risk is also higher. There might be this line of thought in wake of the financial crisis, that real estate carries close to or as much as the same risk. It doesn't. It's just not zero, and that is the lesson learned.