This article, written back in 1991 when housing prices were still on the rise, makes the case for smaller homes:
The chief obstacle to smaller houses on smaller lots is not the consumer, nor is it the home-building industry. It is those of us who already own our homes. Municipalities, reflecting the attitude of homeowners, have staunchly resisted the idea of modifying zoning regulations to permit the construction of smaller homes, or to allow the subdivision of land into smaller plots. The chief reason is, sadly, selfish: smaller, less expensive houses are perceived as a threat to property values and to community status, even though housing in the $50,000-$80,000 range is still accessible only to solid middle-class citizens.