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I've occasionally fantasized about living in a very small house, but never in a high density area. As you suggest, the space you need expands beyond your living quarters.
Over the years as my living space has gradually expanded, so has my collection of things. We consume to fit our space. I don't feel that I need more, and should my means significantly increase, I hope my space doesn't. It's not a real need.
I wonder if these people acclimate perfectly to these 100sqft spaces, or if like caged animals, it stresses them.