Some of it does seem to be a hipster phase, and I'm sure that part will die out, but there will always be people interested in the tiny homes.
I love watching house porn (aka HGTV) and that includes Tiny House Hunters. There was one episode where a couple with three kids was looking at tiny homes. Tiny, not just small. Probably each of the 3 featured on the show was less than 300sqft. They alluded to financial hard times being the motivating factor, and said both parents had worked at the same company and both lost their jobs. I commend them for actually doing something about it, and really evaluating their lifestyle in comparison to their situation. But they ended up choosing the smallest of the 3 houses, I believe, and unlike at least 1 other option, it had no private space.
To me, with 3 kids, that seems sustainable for a year, *maybe* two. Sure, that's my own bias. But I don't see a happy situation living like that with 2 tweens, and mom and dad all but unable to have a private sex life, and all the other potential difficulties. To me, it would have made more sense for them to spend a bit more for a home that might have been sustainable for a longer time. Which got me wondering whether this was something they intended to do for a year or two while they got back on their feet and then upgraded, or whether they were truly looking at this as a long term lifestyle choice.
I think many people fall in to the latter category, and of the ones who don't go in to it that way, I suspect some still end up enduring it for a while for the financial upside (much like many mustachians feel about work!) and then moving on when they've tolerated it as long as they care to.
And no, that's not to say that no one can or will do this long term. But the way many of the people on the show (which I recognize is at least 50% fake), I don't see it lasting forever. It's a lark, or something they do because it makes them interesting and quirky among their hipster friends, or a choice that allows them to save money for a fairly short while but that they can't or won't do longer than that. And none of those things are bad, but they don't lead to permanent lifestyles. And once this movement loses it's hipster appeal, a whole category of buyers will be leaving the market, and it I suspect values will drop.
On the show, I am almost always rooting for the largest of the three houses. Because that 450sqft place seems like somewhere that a single person or couple could comfortably live indefinitely, where as it takes a really special kind of person to be happy in 130sqft forever. But that's because I'm looking at it as a home purchase, which is generally long term. And often I think they are looking at it is a shorter term adventure with a financial upside.