If it doesn't then there is almost no legitimate financial reason to buy a house. Nobody will buy a $200k house if chances are it will be worth $180-220k in 40 years before inflation.
If housing prices are guaranteed to increase, it means owners of housing are extracting unearned rents from the economy. Houses decay over time and eventually need to be renovated/rebuilt, so you should on average take a net loss from owning and occupying a house, just as you would a car.
If someone wants to live in San Francisco, they can't just substitute it by living in Portland. If more people want to live in San Francisco, then the price goes up due to the limited supply.
Developers regularly buy tear-down bungalows on 50' x 120' lots for $1.2M and proceeds to put two tiny houses on the lot that sell for $1M each.
Another reason to own property is to speculate on the valuation of the land or the house itself.
These two aspects of home ownership are very often conflated. It's actually shocking how infrequently this distinction is discussed, especially given how common home ownership is.
A 30 year mortgage on that $200k house @ 6% is going to cost me $1,199 a month or $431,676 over the life of that mortgage. If the house devalues to $180k my actual out of pocket money spent is $251,676.
If I do a 15 year mortgage under the same conditions I spend $1,688 a month, but my total cash out is down to $303,788 over the life of the loan or $123,788 out of pocket (again assuming the house is worth $180k in the end).
Now lets pretend like I can find rent at $1k a month for something similar. That's unlikely to be true over that period (rents tend to rise at least with inflation), but lets just go with it. Over a 30 year period I will have spent $360,000. That's $108,324 more than my 30 year mortgage and a whopping $236,212 over my 15 year mortgage. That's not even counting the interest deductions I get to take on the mortgage interest I'm paying.
Now I know I'm discounting a bunch of things like property taxes and maintenance on the house (in return I'm giving unrealistically low rent). Those costs for your average house aren't going to be anywhere near the difference in rent...
If you're relatively stable in your life, buying almost always makes more sense than renting because at the end of the day you have to pay someone to live somewhere and some of that might as well end up in your bank account.
And another thing to consider, for most homeowners a hot real estate market only benefits them if they are willing to move to a lower priced market or downsize their home. Moving laterally or trying to upgrade during a hot market means you are exposed to the same percentage of price increases as everyone else. The only people that really benefit from hot real estate markets are investors and landlords.
That's a fallacy. Whether or not you rent a place (pay another person to buy it) or you buy it yourself, buying is not always better than renting.
There are many situations where if you rented your whole life you'd be better off than owning, even assuming housing appreciates.
I was renting (after owning for many years) right before the housing crash in 2008. I paid ~$30K to rent a place over two years. I know folks who bought who lost 3 times that owning a house. When I wanted to move I just gave the keys back. The landlord took the hit, not me.
Also fundamentally, we are talking rental property, rental income is a legitimate financial reason to buy rental property. Spend 5 million today, rent out for 500k a year, make your money back after 10 years, literally get money for nothing for every year after that... thats not a good enough financial reason?
basically real estate is a very slow moving ponzi scheme, perhaps one can argue its a ponzi scheme that cant fail as long as the human population continues to increase.
Your scenario (buy for $5M, rent for $500K/yr) actually sounds quite terrible. At even nominal interest rates you're probably paying 150% of the purchase price, so you won't breakeven until almost 15 years in. And with the time value of money, making a big investment now for $500K per year 15 years from now must be an absolutely awful return.
I do see your point thought. There is nothing wrong with buying a house because you want it. However, that's not why most people buy houses (at least in the US). There is the pervasive perception that housing is a "good investment".