Physically, Sydney is a very long narrow strip squeezed between the mountains and the sea. The poulation of Sydney is constantly expanding. To expand the population, you need to build further and further away from the CBD. Eventually, the commute becomes up to four hours per day. Eliminating that commute puts a lot of demand pressure on the inner Sydney suburbs, and consequently extremely high housing prices.
Melbourne is not quite as constrained physically, so prices there are about 25% lower. But commute times are rising rapidly.
Away from Sydney and Melbourne (where JUST TWO housing markets make up 40% of the Australian housing market) housing prices are much more 'normal'.
For a US analogy, imagine if a quarter of all US houses were trying to squeeze into New York.