You don't have to live in a cracker jack box to do this..
Agreed. However, most people buy more house than they can pay off in 10 years. I was uneducated when I purchased my first home and I bought more house than I need. I can afford to live in it, but I can't afford to pay it off in 10 years (which some people would say means I can't "afford" it). However, I'm now seeing the light in something cheaper and simpler. If people were spending $40-60k on houses instead of $250-800k, it'd be a different world. They'd pay off their house in 2 years.
But I realize it's not for everyone. I think humans in general have a hard time thinking outside the box and are pretty resistant to change. I don't think it's the perfect solution for everything, but there's a lot of good that can come from it.
Backpacking has taught me a lot about what I really need to be happy. I think people could benefit from cheaper and alternative housing. As I've come to simplify my life and get rid of things I don't need, it brings a unique feeling of freedom.
I also don't think everyone should be living in a small house. Nor do I think that small houses are necessarily "better" than big houses. However, the restraints of a small house have spawned some really creative innovations. I think it's fascinating.