Housing costs are signalling costs.

From Why You May Not Be as Ready for Retirement as You Think interview with Richard Marston. The article is about saving for retirement and financial planning in general.

Knowledge@Wharton: Attitudes about housing have changed a lot, too. The conventional wisdom used to be to buy as much as you can because it is an investment. Now, after house prices have fallen, people are no longer so sanguine about the housing market. But does that mean you are really better off buying a house that is less than you might be able to afford and putting that other money into savings, rather than thinking of the house as a savings vehicle?

Marston: You’re right, but I can even show that. I have a chapter on this…. It’s true even in California, where there are glorious rising housing prices. If you sold your house in 2006, having held it since the late 1970s, you would have been better off buying half the house and putting [the balance] it in a portfolio. You would have earned a higher return. Housing is a terrible investment in the long run for Americans. You should not buy more house than you really need for your comfort and your enjoyment.

It's those last couple of sentences that caught my eye "Housing is a terrible investment in the long run for Americans. You should not buy more house than you really need for your comfort and your enjoyment." From an empirical and academic perspective, this has been known to be empirically true for many years but it has not seeped out into the general population. I believe that the lifetime annual rate of return on residential real estate for all home owners was something on the order of 0.7%. Residential real estate is subject to confirmation bias and asymmetrical information. Those who do well, who bought low and can sell high, trumpet their good fortune whereas those who barely get out of it what they put in or who lose money are pretty quiet.

But the larger point is one that Megan McArdle has brought up a number of times. We have to be careful about cost of living allowances and inflation adjustors because residential real estate is in many ways a signalling function not a residential function. The amount of house that "you really need for your comfort and your enjoyment" is likely quite a bit smaller and cheaper than what you have elected to spend. If you want to live on Manhattan, in downtown San Francisco, Boston, Atlanta, Chicago, etc. you are not spending money on shelter, or even much on convenience. You are mostly spending money on a social signal - I am at this place in the societal hierarchy.