Is your family home an investment?

I lost this argument the other night, but I'm still sure that I'm right.

The question was whether or not you should consider your primary residence an investment. I think that you should, but I couldn't convince anyone else.

Say, for example, that you have $500,000 that you are currently managing through various investments. If you use this money to buy your family home, does it suddenly not become an investment? If not, where did that investment go? How do I report on that portfolio?

Of course, if I let someone else live in this home and pay me rent, then it's suddenly becomes an investment, obviously, and, even if I leave it vacant, it is still an investment. Yet, for some reason, the moment that I walk into it with a pillow, it is no longer an investment.

That is, of course, unless I happen to sell it some years later for a profit, at which point, people will say "You made a great investment there".

This argument actually came up during a conversation about current house prices in Australia, and whether or not now was a good time to buy a house. I think it was raised by the housing bull, as a last ditched effort to justify buying in the current climate - that is, at the peak of the housing bubble.

Having been pounded by arguments against the possibility of rising house prices in the coming years, he resorted to "but you shouldn't consider your primary residence as an investment".

Right, I get it now. So, because it isn't an investment, I can then justify the 30% capital loss. Pure genius - or slightly delusional.