Small houses are a perfect fit for many homeowners
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"It's true that the cheapest thing you can add onto a house is square footage, and of course the building industry likes to build these things and people are willing to pay a lot for that not-so-expensive addition," he says. "When the housing industry pushed for larger houses back in the '70s and '80s because their profits were leveling out, the banks followed suit. Then the codes followed suit, so it became illegal to build smaller than a certain size."

Americans quickly came to believe that more square footage paid for itself in resale, especially during the run-up of housing prices in the last decade. Since 1970, the average American home has grown from 1,500 square feet to the current average of 2,450 square feet, according to the National Association of Home Builders.

Against that bigger-is-better investor mind-set, smaller homes were either shunned as fixtures from a bygone era or lumped in with mobile homes. Shafer, Alchemy Architects, the Tiny House Co. and others are attempting to change such perceptions about compact living by extolling the virtues of small houses.

Virtues of small houses:

• Energy efficiency: The propane bill to heat Shafer's cabin in frigid Iowa City, Iowa, was less than $170 for the entire winter. • Durability: Tumbleweed houses withstand winds of up to 180 miles per hour. • Expandability: Modular design allows for any necessary growth. • Custom materials: The sky's the limit when it comes to materials. The smaller the house, the easier it is to use cedar, rubber shingle tiles, cork flooring and other materials that would bust the budget of a larger house.

Shafer says the small-house movement is growing as more people become dissatisfied with having to pay more for more house than they need.

"Most of the people who are interested tend to be looking at a house more as a home instead of an investment. It's hard to find a small house anymore. There is a demand for them and they're so rare," he says.

What about my stuff?

Ah, stuff. We love it, don't we? Perhaps the biggest obstacle to downsizing, even for Zen monks, is where will I put my stuff? Jim Gauer, author of "The New American Dream: Living Well in Small Homes," has these suggestions: • Kitchen cabinets that go to the ceiling. • Drawers, drawers and more drawers. Put them under beds, in kitchen bases, in bedside tables, inside closets. • Closet systems, such as those available at California Closets and IKEA. • Storage walls, such as those found behind the impossibly pristine minimalist interiors you see in architecture magazines. Often the space behind the floor-to-ceiling panels is shallower than one foot, but useful to hide all sorts of clutter. • Outside storage option. If there is stuff that just won't fit, consider renting a storage locker. It's cheaper than maintaining extra square footage you only use for storage.

The Katrina effect
New York designer Marianne Cusato wasn't out to change the world when she designed the Katrina Cottage. Her goal was to help provide immediate housing to the victims of Hurricane Katrina.

But when Lowe's executives saw Cusato's compact, self-contained cottage at the International Builders Show in 2005, they recognized a solution to the broader need for affordable housing nationwide.

Lowe's partnered with Cusato and made Katrina Cottages available to order at its 29 locations in Louisiana and Mississippi. The one- and two-bedroom bungalows, in four styles ranging from 544 square feet to 936 square feet, are delivered in sections for easy assembly.