"There is a limited supply of land close to all cities and there is a big demand.."
That's exactly what the pundits claimed about Tokyo - just before their property bubble burst. Supply & demand factors determines the price of goods and services, but it is not the sole determinant of financial asset prices (which our housing market has become, especially over the last decade).
Australian house prices were driven higher by an ever expanding credit fueled investment mania. But the 'housing fever' has worn off, as shown by falling housing finance figures, so prices are deflating along with the credit bubble. Considering we've got a long way to go to reach long-term median prices it could take 5 years before we finally reach sustainable levels again (about half the recent peak in house prices).
