In economic terms, spending on housing is consumption, not investment. We live in a house, and therefore we consume the house. Houses are not used to produce other goods. A manufacturing plant that makes computer parts is a production investment. Thus, the misinvestment in housing shifted resources from production to consumption. You can spend your money only once. If you spend it on houses, you cannot spend it on manufacturing plants. While houses create jobs while they are being built, once they are built, they do not create jobs going forward. A manufacturing plant creates jobs when it is being built, but, more important, it continues to create jobs as long as it operates. In fact, it is jobs that create houses, not houses that create jobs.

When you shift capital (money) from production to consumption, you reduce your future standard of living. This may be a good decision for an individual (or an economic system) because we may want to or need to consume today. However, if artificial incentives cause this redistribution from production to consumption, our future standard of living will be permanently reduced. In other words, by investing too much in housing, we invested too little in manufacturing capacity, technology, education, agriculture, and other such areas.

from The Financial Crisis and the Free Market Cure: Why Pure Capitalism is the World Economy’s Only Hope by John A. Allison