You know what the biggest irony of this "tiny" house movement is?
There actually is a market for newly built smaller and more modest homes. One that is largely not filled, in a good portion of the country. Not that builders wouldn't want to build these homes. Many would love to do so, but they aren't allowed by regulations and the cost of land (which is priced higher due to over regulation, largely due to zoning). They would be easier to sell to, because more people could afford them. And most people still prefer a single family house over a multi-unit building, even in cities.
What I am meaning, homes between 800-1800 sq ft. Not these tiny 200 to 600 sq ft. houses but homes that aren't huge but not tiny. Think of the homes built by the millions in the 1950's through the 1970's. The ones you didn't really see large numbers of after the 1980's. That's what people want, need and can afford. And you largely cannot buy a new one anymore, and most of the existing ones are now 40 or more years old (as is, fixers). Yeah, they wouldn't be the same as those from the 1950's since most people would want a house with more open floor plans, 2 bathrooms (rather then just 1), and a bigger kitchen. But the rest wouldn't be that much different.
Zoning makes these types of homes basically impossible since many communities have minimum square footage floor size (it blocks the tiny house movement too)and often minimum room sizes too. Top that off with the cost of lots (often they have minimum sizes too) which are driven up in cost by many requirements that were never demanded of in the past. You end up with just 2000-5000 square foot houses few can afford because that ends up being the only thing that pencils out for home builders.