I truly hope this encourages manufacturers to build smaller, lighter, and slower cars.
People in the majority prefer large, powerful cars, given the choice. And those cars already cost a lot, so any strategy of price increases to discourage them will have to be significant. This is why most people in Europe drive small, economical cars. Big cars are heavily taxed, and so is the fuel they use.
Small streets mean fewer drivers. That means your overhead demands that you charge more per customer since you have fewer of them.
All that said, smaller roads mean smaller trucks which means more trucks more often which means more tires.
The US has dumb mileage policies to get everyone to drive huge trucks, and pretty much bans things like the N-Box.
In Japan you get a parking exemption with cars like the N-Box and it seems quite useable - top speed 87 mph. Review https://www.motortrend.com/reviews/honda-n-box-slash-review-...
I wouldn't mind them bringing in something like that - I'm in the UK where they don't have N-Boxes either but it would do the job and I mostly get around by e-bike these days so I prefer others to drive small light cars.
They already make plenty of them
Yes, we're at the stage now where democracies need to become far more dictatorial, otherwise their populations will continue mindlessly along the path of 'Tragedy of the Commons'.