How much does it cost to build a new house in Sydney?

Obviously, this depends on what you are after. Hyundai or Ferrari? Often, something in between is chosen.
Having said this, the common range for a new build is between $1050 – $1450 per square metre of floor area in Sydney
Different structures, window, wall and roof types affect this as much as wall linings, ceilings, floor surfaces and fixtures.

Why does building a house cost so much these days?

Its all relative. Back in the 1970’s a house was a lot cheaper, but then the average pay was also a lot lower. The improved methods and materials used in modern houses means that there are less man-hours involved in building a house these days. Consequently, the real-term costs are the same or reduced for the same level of finish.