Because weddings are not just about the couple. For a lot of people, it's almost a 'community event' and if you have eaten other people's food and drank their wine, danced to their DJ etc at their wedding, you should also take your turn to host. A lot of people have large families and circles of friends and want to be good hosts on such an important day - so invite them all and feed and provide drinks for them all. That's expensive.
It's 'just a day', but for the majority of people, it's still something they only do the once, so why skimp?
We spent a lot (not as much as your friend), and yes, it did hit our savings fund for the house, but we could always save in the future for a house, we will probably own more than one property in our lives, but we will only get married once.
There'll be a lot of competitive cheapness posts on this thread, people agreeing with you who will say they just paid £2.50 for a second hand dress in a jumble sale and bought one bag of twiglets for their guests to share, but for most people, it's not 'just a party' it's the most important decision and commitment they will make and one to be celebrated.
You sound smug, you might as well say to your friend, "well, if you'd studied harder at school, you might have a better paid job and then could get a big house." Your friend is complimenting you BTW - the correct response is, "thank you, we have been lucky, I love living here."