Haha... agree. I love it here, more than my home country.
And if you see the overall living standards, house price vs salary etc, it's not actually bad when compared to places like Jakarta or Singapore.
I would think main reason is SYdney is the main financial hub/capital of australia. Stock exchange is here. Some Major Bank HQs are here. Telstra HQ is here. Heck even the prime minister is here.
Sydney is a nice city, but every city has its own charm. If they moved all these to canberra or any other big city, Sydney would be so much cheaper. (melbourne also has some of the major HQs like ANZ bank and BHP Billiton
Real estate inflation is just a flow on effect from the above as more overseas/local demand/investments are now channeled to Sydney/melbourne. But with all asset inflation, if price is decoupled from fundamentals too much, it will always revert to the mean
IMHO, Just follow the trail of money and wherever it goes you will get more asset price inflation.