Economic Myths: The UK house price bubble was merely the flip side of sterling devaluation

This is something which all sides like to trot out; mainly the Austrians and Faux Lib's, but also some of the priced out-conspiracy theorists, and the Homeys like to use the retrospective justification that owning land is the only good hedge against inflation (Home-Owner-Ism is in fact the main cause of inflation).

The theory ignores the basic fact that currencies can't all devalue relative to each other, and that there were price rises in nearly all Western countries (and in PR China) between the mid 1990s and 2008 or thereabouts. The argument that net immigration causes house price rises suffers the same flaw: even in countries with net emigration, there were house price rises over the same period.

And all the evidence points in the other direction: there is a positive correlation between the strength of sterling and UK house prices.There are subtle reasons why one causes the other, or perhaps they have a common third cause (it might be as simple as the fact that what is good for the UK economy is good for GBP and pushes up house prices and vice versa), see footnote*, but hey:

I think it would be fair to summarise those charts thusly:
- From 1990 - 1995, GBP and house prices both falling;
- From 1996 - 2008, GBP went back up sharply and then plateaued; house prices rose steadily throughout;
- In 2008 and 2009 GBP and house prices fell sharply
- From 2010 - today, GBP and house prices have been bumping along the bottom, both drifting down slightly.

That looks like a positive correlation, not a negative one which is what the Faux Lib's claim.

* The main cause of high house prices is an increase in the amount of credit created by banks; the bankers are probably the main driving force behind all this, along with a few very large landowners: