If interest rates rise, or something else happens that reduces the value of the property, then that $500,000 mortgage might be against a house worth less than $500,000. At that point people have to start playing chicken with the banks again, trying to mitigate the losses with strategic defaults.
It’s one of the few investments where:
* you can get a huge loan with a tiny interest rate
* you can actually enjoy the investment by living in it
* everyone around you is doing everything they can to keep house prices up and therefore keep your investment growing
I mean seriously, the only other option is dumping all your money in a stock market that you can’t touch and have no control over.
The biggest reservation I can think of with housing as an investment is that it's singular in terms of economic sector and geography.
With the market people can diversify, although there's no guarantee they will.
Being able to leverage a small down payment for a more valuable asset can also be advantageous or disadvantageous depending on what the value of the asset does.
Most municipalities will first establish how much tax revenue they need, then look at the total property values that's taxable, and then set an appropriate rate. If property values double but municipal expenses don't, they can and do lower the property taxes. It's not a 1 on 1 relationship but given average property tax income as a percentage of total income has slightly come down over the past decades, it's clear that tax rates are being reduced as property values go up.
Banks deciding they want to own more real property.