True, although a lot of smaller houses/tiny homes will use mini splits for their heating/cooling, which are significantly more energy efficient than central AC units. Insulation is also relatively cheap. Solar is an option to offset it as well, although extra insulation is a much easier and cost effective option here (at least in the short term).

Most houses that are classified as tiny are in the 200-400sqft area, so while a "small home" is about twice as large at 500-700sqft, we gotta remember that most houses are 1500sqft anyways, so we are still coming out ahead.

Plus, I think it's much much easier to convince the average joe to live in a 500-700sqft home than in a 200-400sqft home.