Without going into a lot of technical details, just please consider a futures market in general. Arbitrarily, take wheat or Eurodollars.
Why are these markets successful? Because there exist both ''natural'' longs and ''natural'' shorts in these markets. The wheat grower is a natural short, because (if he's a brain in his head) he'll use the markets to lock in a price for his crop. The miller and the bread baker will use the markets to lock in their cost of input product. The specs and the funds grease the wheels (insure liquidity) for such markets.
The principal problem with housing/real estate index futures is that there is only one natural group of players, in theory: those who own homes in the index-covered areas. These are natural shorts.
Who are the natural longs? Damned if I know. ...
I've been mulling this over all day, and when I think of the stock market, I can't figure out what are the "natural" longs & shorts by your definition. (Which I read as: Anyone except speculators.) A long position in a dividend-paying stock is an investment in future cash flow of course, but aside from that what are the reasons to go long or short on a stock besides speculation, when you come down to it?
Hedging a long position is better done thru buying puts, isn't it? You can go long one stock & short another, but that doesn't strike me as being pervasive enough to offset the "natural longs".
The concept of ''natural'' longs and shorts applies to futures mkts, not equity mkts. The reason this is the case is that these two broad markets exist for different reasons.
Equity markets exist to facilitate capital investment and provide for transference of ownership; futures mkts are mechanisms for the transference of risk. Both have speculative components in their makeup, but speculation is the raison d'etre for neither one.
No one, bar the proprietor of a business, can really be said to be a ''natural'' owner of shares in a business. Equally, no one -- as you point out -- is a ''natural'' short for shares. The other way to say this is to define a ''natural'' as a person or institution who, because of the nature of their business enterprise, will almost invariably be participate on just one side of a (risk transference) mkt.
Does this clear things up a bit (hope, hope...g!)?