I think this common argument massively overstates the case. I have friends whose parents left them their primary residence. Mine did not. "Where’s the huge upside though?" sounds to me like sort of an insane question, when viewed through that lens.
But just to lay out the argument further, here are some concrete examples of upside:
1. The money is real and you could move to a lower-cost-of-living area. Owning a house in San Francisco is like having a standing offer of a million dollars to move to the Midwest. That's not nothing. "But I don't want that million dollars, I want to stay here," is not a compelling argument. The offer exists whether you take it or not.
2. You can sell and rent and keep all the equity, which you get to invest elsewhere. Congratulations, you're now a renter, just like millions of ordinary hard-working people. The difference between you and them is the cash you put in your pocket when you sold.
3. Your mortgage payment is fixed, so it's an inflation hedge.
4. You can borrow against your equity.
5. Because you can buy with so little down, having a lot of equity means it's pretty easy to buy again, even if prices go up. An existing homeowner is much better positioned to buy than a non-homeowner, all else equal.
The benefits of owning a valuable asset don't disappear just because you don't want to sell it at the moment. The asset represents options, if nothing else.
