I'm the "programmer in Michigan" (actually Minnesota) she mentioned in the article. I live in a 3,000+ sq ft house. We moved from an 1,800 sq ft house that we only used half of, so we obviously didn't need all that space. So why is my house so frickin' large? We needed at least 10 acres of land with less than a 50-minute commute to work and wasn't 100 years old (Minnesota's climate is very harsh on houses). Every place on the market that met the basic requirements we set was close to, or more than 3,000 sq. ft. Many were much larger. Around here builders simply don't build small houses on large lots and I suspect they won't anywhere else in the US for much the same reasons you give.
Personally if I could sell my house tomorrow and buy a 1,200 sq. ft. home on 20-30 acres I'd be thrilled to death.
I think a big driver of this phenomenon is http://en.wikipedia.org/wiki/Highest_and_best_use
Sure, if you're planning on flipping the house in a few years it'll be harder to get the price you think is right, but otherwise, there's a lot to be said for looking at a house as a place to live vs. just as a financial instrument.
(Not surprisingly, people often find something to do with that space, and then they really do need the space, a sad loop.)
That's called a Lexus IS250.
Interestingly, there is a luxury version of the Civic in Canada, it's called the Acura 1.6EL. Other than the fact that it shares sheet metal with the Civic, I'm not sure why it's not sold here.
The problem is that if I put all that stuff into some tiny house, I'm stuck with it pretty much forever. Nobody else who can afford that stuff wants a 65 square ft house, or at least so few that I have no hope of getting a fair market value. It seems unlikely that will change, especially since by the time you can sanely afford these things you're probably near having a family.
One extremely way in which people value homes is $/sq.ft. Compare a 65 sq ft home to a 4,000 sq ft one, both with top of the line everything, and you're probably left with a market value about equal to what your dishwasher cost.
If I buy a 4,000 sq ft home and load it up I'll be able to sell it 10 years from now. Barring the very rare bubble bursting (like we're experiencing now) I'll probably be able to sell it for more than I paid for it. If I buy a 65 sq ft home and load it up, I'll be out a bundle.
So if money is not a constraint and you just want a smaller home, I think you have to find the happy median. Get a fully loaded 1,500 sq ft house and hell, just leave half of the rooms empty. There's certainly some size below which you're hemorrhaging money on the deal, and I imagine it's at least 1,500 sq ft here in Middle America.
If you have so much money that you don't care about resale value and you do care quite a bit about the environment this is probably fine. If you want laminate counters, vinyl floors, and cheap appliances, this solution might also be fine too. But for a large segment of the market this is unfortunately financially untenable, no matter how appealing.