Space isn't conserved, it's increase is being opposed.
Size is relative. There are definitely cultural factors that influence what we consider small or large. For example, London has the London Housing Design guide which recommends a one bedroom flat for two people to be a minimum of 50 square metres. I don't think that’s palatial or excessive. It's still less than what many other European countries recommend (it’s 20% less than what Germany recommends which is 60 square metres for a one bed flat for two people [1])
In the article, it states that UK developer Pocket Living are building 38 square metre one-bed flats. 38 square metres is fine for one person, but not for two people in my opinion. These apartments may have high ceilings and floor-to-ceiling windows, but they are usually single-aspect and narrow in length (with the windows at the narrow end) in order to fit as many units into the available plot of land.
I'm not a fan of this micro apartment trend. Housing lasts for decades and future generations will have to take over and live in this micro-housing stock. Is this the housing legacy we should leave future generations?
[1] The Case for Space report (PDF) from the Royal Institute of British Architects (RIBA) published in September 2011: http://www.architecture.com/files/ribaholdings/policyandinte...
Italy - where I live - has a lot of old housing stock. Some of it is very old. When something isn't right for the inhabitants, they modify it. Adding plumbing, combining apartments, adding or removing walls... you can do quite a few things.
This is an excerpt from the last national housing space standard published in the UK in 1961 (the national space standards were scrapped in the 1980s by the Conservative government). This report was written over 60 years ago, and yet what is says is still relevant today (at least in the UK)
"…a good house or flat can never be be made out of premises which are too small...additional space is also an important long-term investment, for if a house or flat is large enough it can usually be brought up-to-date as it gets older; but if there is not enough space the improvements can be impossible, or at least unduly expensive. Homes are being built at the present time which not only are too small to provide adequately for family life but also are too small to hold the possessions in which so much of the new affluence is expressed...Such places cannot be expected to meet the needs of their occupiers today, still less hold their value in the long term."
(From a government report called Homes for Today and Tomorrow, published in the UK in 1961)
Quite often in modern steel-frame construction the only real constraint is the external walls and the support pillars. You can knock down all the plasterboard walls and turn it into an open-plan office if you want.
You're right about old buildings, brick houses and external walls. I think in the UK the property industry sneaks round the Parker-Morris standards by expressing things only in terms of number of rooms, never total floor area.
The space itself being extremely expensive is - in some cases - possibly a symptom of people not being able to build enough.