VPS's are really so dirt cheap that some of them only work because people dont use the servers 100% that they are allocated at or when people dont use the resources they have for most part because of economies of scale but vps's are definitely subsidized.

Cheap vps servers 1 gb ram and everything can cost around 10-11$ per year and using something like hetzner's cheap as well for around 30$ ish an year or 3$ per month most likely while having some great resilient numbers and everything

If anything, people self host because they own servers so upgrading becomes easier (but there are vps's which target a niche which people should look at like storage vps, high perf vps, high mem vps etc. which can sometimes provide servers for dirt cheap for your specific use case)

The other reason I feel like are the ownership aspect of things. I own this server, I can upgrade this server without costing a bank or like I can stack up my investment in a way and one other reason is that with your complete ownership, you don't have to enforce t&c's so much. Want to provide your friends or family vps servers or people on internet themselves? Set up a proxmox or incus server and do it.

Most vps servers sometimes either outright ban reselling or if they allow, they might sometimes ban your whole account for something that someone else might have done so somethings are at jeopardy if you do this simply because they have to find automated ways of dealing with abuse at scale and some cloud providers are more lenient than others in banning matters. (OVH is relaxed in this area whereas hetzner, for better or for worse, is strict on its enforcement)