The Economist's Ryan Avent has a great turn of phrase  when discussing London's sky-high house prices, and the supply constraint which has caused them:
The world craves London and is willing to pay vast amounts of money for a piece of it. And there are few logistical limits to making more London: a process that would generate huge flows of income and employment for Britons… One could free building rules dramatically (lowering the shadow tax rate) and raise actual property taxes to help fund new infrastructure, and still have everyone come out ahead.
Or almost everyone, I should say. Property owners would not. And that's the reason there is a problem in the first place. London property owners, as a class, are effectively an incredibly successful rent-seeking operation greedily sucking up the economic surplus generated by the city's economy.
London is a limited commodity. Not everyone can live there, it's true. But it's not actually as limited as it seems. We could build a lot more London than we do. Avent, with the incision of an outsider turning his eye to matters bogged down in local politics, offers some pretty good reasons to do so, and some responses to the most common reasons against. Worth a read.