Because margins on building smaller housing is lower so nobody with capital is investing in it. The same reason the US doesn't build cheap commuter cars, nobody with money to invest is investing their money on such a slim margined product with no windfall conditions.

> Why is it impossible for Americans to live with 300 sq ft per person like baby boomers did as kids, but now we must live with 600+ sq ft per person?

Because the American suburbia developers want some nice chunky profits. It isn't enough any more to sell glorified matchsticks and cardboard.