It's a massive problem. New construction is bigger, so you get to pay extra for heating, cooling and cleaning, and you also have the extra commute because it's located out of town, across the highway, to keep the rabble out. You can't have reasonable size and a short way to work because the urban school district is too run down.
I see. The poster above says value has gone up, but that says nothing of the floor in prices, which is also rising even if at a different rate. The end result can still mean more people priced out of the area and harder times for those in it.
Most places have some combination of minimum dwelling sizes, minimum lot sizes, minimum parking requirements, height limits, limits on number of units per lot, etc.
When you add over-wide roads laid out in pedestrian-hostile patterns, additional zoning restrictions on commercial buildings, etc., the end result in many places developed in the past few decades (including almost every recently developed neighborhood in the USA) is to depress density, increase per-unit housing prices, force most residents to travel by car, etc.
Repeating the question: Where is it illegal to build houses below a given minimum size? Can't you name any off the top of your head without throwing up other criteria as chaff?
I’m tempted to tell you to take your hostile insulting response and shove it. WTF?
Most municipalities in the US has some kind of minimum dwelling size, sometimes varying by zone. They can be anywhere from a few hundred square feet to about a thousand square feet (or occasionally bigger). Like other local laws, they vary widely in the details.
You can check local municipal zoning codes for whatever specific community you are interested in. San Jose is one of the rare places which apparently does not have such a rule. Though sometimes building codes enforce minimum sizes when zoning laws per se do not – I don’t care enough to go read through the San Jose building codes.
For more general discussion, if you do a web search for “minimum house size” you will get millions of results.
There is a vast amount of regulation at play now. On techcrunch I read an article that said developers now have to use super computers to analyze all the regulations, in order to plan constructions now, all due to over-regulation.