I study economics at college (senior high school if you're from the US), so we learn all about the housing market and such things. House prices in the UK on average are about 7 times the average person's income, even though they used to be about 2 X at one point. It isnt so much the problem of limited land for building on that's causing house prices to rocket, the main reason for the inflation in the housing market is that people simply believe that house prices are rising. It sounds silly, but if the public believe that house prices are rising, then they WILL rise because everybody will up their prices so that they are no worse off then everyone else. (When the government say they have a target of 2% overall inflation each year, they are not actually doing anything to achieve this target, but if the public think that prices will not rise much....then they wont).
This can be caused by people who rennovate their house (add value to it) by things such as adding a conservatory, and then selling it for more than they bought it for. If a small proportion are doing this then word will spread that prices are rising and people will act in accordance.
Another influence on rising prices is the new craze of people remortgaging their houses in order to release equity (money) by getting a bigger loan from the bank, to be spent on whatever they please. As soon as some areas start doing this, so too will other areas in order for people to afford these newly priced houses.
sorry if not much of that made sense, economics is generally quite difficult to understand i think. but i had nothing better to do so hey.
