I believe the Portland ADU maximums are around 800sqft for the structure, so if you're adding a level above your (20'x20') garage, the upper residential level will be around 400sqft. A 400sqft footprint is certainly not unheard of for an apartment, but for a standalone residential structure that includes all the mechanical systems is relatively small. The tiny house community does seem to be designing for much smaller (150-200sqft?) sized spaces.
Land-use wise, I agree that this housing is needed in Portland and other metros with similar housing stock. Everyone wants to add housing, but no one wants to tear down charming Victorians/Craftsman Bungalow blocks to make way for more density / apartment buildings. As a result encouraging people to add residential units in backyards and basements makes a ton of sense.
One thing that wasn't obvious in the article is that the city is simply waiving the development fees for ADUs to encourage their construction. Previously, one could have built the same backyard structures, but would have had to pay ~$20K+ in development fees.
By the way, more space-efficient housing is desperately needed for new real estate developments in Portland. As a matter of fact, it should be mandated. Real estate developers should not be able to treat this city like a personal casino while working class families (many that have been here for decades) get pushed out. In this regard, treating the issue as an outlet for "design statements" is reflective of the problem. Shelter should be a basic human right; hyperinflating the value of it when there isn't enough to go around is to rub salt in the wounds of lower income people.
[1] http://thetinylife.com/what-is-the-tiny-house-movement/
[2] http://money.cnn.com/2014/06/04/real_estate/american-home-si...