I got my project off the ground but it is more of a small house pocket neighborhood with 11 houses planned between 800 and 1500 sq. ft. The second house is under construction, the third went to permitting today and the fourth is in the planning stage. The project is rated high in green building certifications and I am also focused on the relational aspects of an "intentional neighborhood".
There are many issues to consider for smaller houses. As mentioned, building and zoning codes are difficult to get around, high density is required to make financial sense and, practically, I think interest is more around peoples desire to simplify their life than to live in a very small space.
That said, I would like to try a project with houses in the 400 to 700 range, and maybe a few tiny's included. I am in Asheville, NC with a fairly progressive and reasonable planning department. They put together a "cottage development" ordinance 5 or 6 years ago to encourage more sustainable development.