I’m not sure I get your point. If the utility of a home is largely a function of size, but the cost is largely a function of location and amenities then there’s little benefit to specifically building smaller homes rather than less expensive homes.
No one is seeking to build smaller; they're seeking to build less expensive.
Building smaller (specifically reducing square footage, baths, and kitchen amenities [which are a mix of size and non-size elements], and using less land [going up, sharing walls/roofs, eliminating private outdoor space, etc.]) is the mechanism by which the goal of less expensive can be met.
No one is seeking to build smaller; they're seeking to build less expensive.
Building smaller (specifically reducing square footage, baths, and kitchen amenities [which are a mix of size and non-size elements], and using less land [going up, sharing walls/roofs, eliminating private outdoor space, etc.]) is the mechanism by which the goal of less expensive can be met.