Amazingly, this is a topic I've never written about in all my articles and books about dogs. Perhaps that's because the answer seems to clear to me, but it obviously isn't to everyone, or at least everyone isn't arriving at the same answer.
Dogs are a social species. They want to be with others of their kind. But we often make that impossible by having only one dog. So the second best option becomes being with their humans. And that means living in the home with the people. Indoors. In the living room, kitchen, dining room, bedroom. . . wherever the people may be.
Yes, I acknowledge that there may be some reasons for excluding the dog from a particular area. People with allergies are often instructed not to let the dog sleep in their bedroom, so that at least a third of their time is spent away from the allergy-causing dog. But I just don't see it. I myself am allergic to dogs, and I much prefer to live with a stuffed-up nose than to ban my dog from my presence.
Then there are those people who get a dog solely as a "watchdog" and tie the dog in the yard so he can keep an eye on things. Well, he may be keeping an eye on the yard, but if he's never allowed in the house, why should he protect something in which he has no stake? Dogs have a well-developed sense of "property," and if they haven't lived in it, chewed on it, or marked on it, it likely isn't considered theirs.
And don't get me started on the clean freaks. A clean house is nice. I wish mine were cleaner. But I'm not going to exile the dogs to achieve that level of cleanliness. Yes, there is dog hair serving as a door sweep under some of the interior doors, and the doggie dust bunnies behind the bathroom door are truly impressive. And sometimes there are muddy footprints or food dropped on the rug or burrs and twigs carried in from outside or even (horrors!) the occasional accident. None of it is going to kill me. In fact, studies have shown that children kept in super-clean environments have a much greater tendencies to develop allergies than those kids who are reguarly exposed to dirt and, presumably, germs.
Dogs outside on their own can get into too much trouble, bring down the wrath of your neighbors upon you, and generally lead an unhappy life. Dogs belong in the home. . . with their family. . . who chose to have them in the first place. So no excuses.