As the month of November 2020 has marked 2 decades of the ISS being operational as well as the first operational flight of a next-generation spacecraft to it, I felt it fit to ask this question today. I will give sources to claims made in this question as desired.
From spaceflights to earlier stations like Skylab, the Salyut series, and Mir, it was known that prolonged exposure to microgravity is very damaging to human health, causing massive bone and muscle loss as well as blood loss and blood redistribution among numerous other ill effects, to the extent that a crewed Mars mission would be barely recoverable from without mitigating technology. While not fully foreseeable by the original developers of the ISS, development of this technology is happening extremely slowly, with non-negligible progress only in the field of muscle loss (the ARED is still being tested on more than a decade after launch).
Even discounting health issues, microgravity has effects that make comfortable life challenging. Because of the lack of settling, the air volume has to be kept extremely clean, necessitating loud fans that disrupt sleep. These are also necessary to even carbon dioxide and heat distribution due to the lack of convection, which also makes cooking extremely difficult—the first attempt in December 2019 taking a whole 6 times longer than in 1 g. Food consumption is very problematic in general. Even something as simple as a soft drink isn't enjoyable in space, due to eructation often resulting in acid reflux. These began to be known even before the medical effects were understood.
Attempts to ameliorate issues like these—not to mention simply designing systems to operate in the alien environment of zero-g—had cost billions in R&D even before the ISS was launched, and they knew it would continue to cost billions. On the other hand, a minimal artificial gravity station could be constructed using as little as 1 largely-conventional module with an equally-massed inert counterweight. To ease docking and attitude control a connecting module and another contra-rotating couplet could be added, for a total of 3–5 modules plus 4 trusses, 2–4 of which are pressurized†. Optional additional modules could be symmetrically added to fill out the torus. While initially at 1 g, the gravity could be reduced to determine a cutoff value, allowing the future design of (or modification of the ISS into) smaller, more mass-efficient stations. With all that in mind, why was the ISS constructed as a zero-g station at all?
My guess is that they (mostly NASA and what later became Roscosmos) did so mainly because it was the result of a combination of the much older Space Station Freedom and Mir-2 programs that faced cancellation, but only one module was completed before the ISS program was announced, which was not the first one to be launched.
IMPORTANT NOTE: I know one of the primary objectives of the ISS is the study of non-human subjects and materials in microgravity, but that research could be carried from modules docked to the central one, with the crew living in the centrifugal modules.
†This doesn't seem more costly than the ISS at "completion" in 2010, or even significantly more so than it at modular operation in 2002. Correct me if I'm wrong.
