It is an incantation to evade close scrutiny of real estate accounting.
Part of a series of articles on housing myths.
Home Mortgages Are Bad Investment Tools? Housing Myths Part 3
Some people make the “you have to live somewhere” argument to ignore most mortgage costs and make the home-as-investment accounting look better (hiding liabilities "off-book" a la Social Security). However, that argument backfires and incurs additional costs that still invalidate the arbitrage game of borrowing to invest in a home as an investment.
"You have to live somewhere" cuts both ways.
The Replacement House Cost: “You have to live somewhere” means that you cannot sell your house without buying a replacement house--or other accomodation, but the "housing ladder" ideal is to "trade-up" and most people do not transfer to a lesser market, smaller house, or rental (although if you had tried to rationalize by subtracting rent value from your house purchase, be consistent and add rent cost to your home-sale costs if you do not buy a replacement house). Therefore, the cost of your replacement house is part of your transaction costs to realize your gain on your first house—and many people would find the result to be a net loss if they accounted correctly.
The Deflator Negates the Appreciation: “You have to live somewhere” negates most or all house appreciation because most people will replace a house with another house that appreciated by a similar amount. The key to “real” appreciation or “beating inflation” is a differential price rate between 2 different classes of commodities (say, real estate v. the CPI’s non-house basket of general goods) or 2 different markets. i.e. when your item increased more than the item that you want to buy, you can trade at a favorable exchange rate (a basic idea most associated with, but not limited to, currency trades). By re-investing in the same asset class and market, you eliminate the arbitrage possibility; you eliminate the possibility of beating inflation. In other words, when you calculate your real appreciation from your house-sale as investment, the proper deflator for the first house is the replacement house’s appreciation over the time period that you lived in the first house (do not use a CPI deflator). Many people will learn that trading keys is like getting a 10% raise to buy items which cost 10% more--they realize no real net gain from appreciation. The profit truism is “Buy low. Sell high” but sell-high-then-buy-high makes no money. You are running yourself ragged on your hamster wheel.
$XX,XXX Transaction Costs to Middlemen: “You have to live somewhere” requires the transaction cost of buying replacement housing and can lower your house-sale net gains by tens of thousands of dollars (compared to the $10 transaction fee that you pay to Ameritrade to realize your stock gains). You (the re-buyer) pay the realtor costs, new loan origination costs (points), closing costs, moving costs, and any other costs plus the value of time and inconvenience to move. The seller pays the realtor with the buyer’s (your) money. The old joke is that the buyer is the only one bringing money to the table and everyone else is a taker. Various “cash-back” games or other incentives usually amount to additional debt heaped onto the buyer (such as your “free” granite countertops at $10,000 plus 6% interest).
No net appreciation + high transaction costs = real net loss
Certainly some people make money and you could avoid a replacement-house purchase by moving back in with your parents--but then you could have lived with parents all along and worked as landlord to your mortgaged property--but then you did not need a mortgaged property at all and your money could have earned more elsewhere debt-free.
Many happy "housing ladder" key-traders stay happy only by not looking too closely behind the accounting curtain.
Next: Why rent and the “You have to live somewhere” argument proves that your housing is NOT an investment: Do Not Confuse Houses with Housing: Housing Myths Part 5