"As the long term trend is around 3%, similar to inflation, doesn't that mean that houses never really get more valuable in the very long term?"
I have heard this argument before and there is probably a lot of truth in it. I think the problem this time was that people were far quicker to remove the perceived extra capital from their homes to buy other luxuries and/or to trade up.
The government cannot be blamed for peoples greed or the banks willingness to feed it. The government cannot also be blamed for suffering the contagion of a US problem. Personally (await flaming but), I think Brown and Darling have made a pretty good fist of reacting to the crisis and things could have been much worse without the monetary policy decisions they they have made.