This is just empirically false. High rise construction is massively cheaper than the current property values. Per square foot, suburban Palo Alto is $1409 per square foot at the median [1]. Heck, even the Burj Khalifa, the tallest building in the world, and hardly a bastion of affordable housing, cost only 1.5B / 3,595,146 = $417 per square foot. [2]

More reasonable construction of 10 - 20 stories could easily be put up for that cost, even once you factor in the high cost of labor in CA.

1 - http://www.trulia.com/real_estate/Palo_Alto-California/ 2 - http://en.wikipedia.org/wiki/Burj_Khalifa