Having homes be investments is a good thing, in the original sense of "investment": something that you own which you put effort into in the hopes of making it better later. Incentives change dramatically as a homeowner in ways that are generally beneficial to the community: you are incentivized to improve the property, to maintain the property, to put effort into the local community in ways that make the land and location more valuable, and so on.

I think that what you're complaining about is the financialization of investments, where every investment has an associated dollar value and that dollar value must always go up. This affects more than just homes. The need for monotonically-rising corporate earnings makes corporations pull all sorts of accounting shenanigans, it makes them cut costs and push sales until the product quality is the bare minimum people will buy, and it results in all sorts of pain for workers in the resulting reorgs and layoffs. The usage of Bitcoin as a token whose value just goes up has negatively hurt the development of the crypto economy, because people aren't actually using crypto, they're just hodling and hoping $$$ go up.

The elephant in the room here is fiat currency, positive inflation targeting, and negative real interest rates. If you know that the dollar's value is eventually going to zero (which follows mathematically from inflation being an exponential curve), then the sum of the cash flows from any productive asset becomes infinite, and the only check on its value is that investors can't really reason about infinite time horizons. If inflation were targeted at zero (or at least some value that gave positive real interest rates), then that sum converges and you can speak about properly valuing assets and allocating capital efficiently.