My feeling is that small spaces work best when there are plenty of reasons to be out of them nearby. In other words, a small beach house sounds great to me. I have had some cabins in the high desert, from 500 to 800 square feet and I loved them since I was always out on the patio, or going hiking.
A small apartment in a great city like New York or San Francisco also seems very appealing to me.
That said, we have a large home in Murrieta, and where we live I prefer lots of indoor space. With our warm summer weather we sometimes need to be indoors a lot and often need our own spaces. I have two daugthers and a baby on the way, and we like our space.
Of course, most of the time we are all together in the big house. It amazes me how I will find a corner to read in and within five minutes we are all there, my wife, the two girls and our dog, all curled up in 10 square feet!
