House prices are high because the number of people per square metre is high, amongst other factors.
Like I say we have the space, so why not start producing nicer places to live?
At the cost of what other land use? Greenbelt? farming? brownfield industrial? I'm not sure what the other 92% of the land is, but I bet a large proportion of it it is entirely unsuitable for housing and attempting to build on the rest of it will cause clashes with some other existing land use, or be financially prohibitive to the developers due to the work required to make the land suitable.
It seems that the country has failed to have any proper plan for where we are to house everyone,