It is hard to really talk you out of the expensive house without knowing more about your goals and priorities. I can imagine situations where it could make sense to get the more expensive house if there were true specific reasons (not rationalizations) that the more expensive house met critical needs and values for your life [based on the school system, or wanting a yard or access to a community garden for your existing favorite passtime of gardening]
I guess you have framed this a potentially irresponsible luxury purchase so I could remind you of the greater life satisfaction you'll get from reaching financial independence early, and how happiness comes from experiences and relationships, not things. (Also, the quick ego bump from showing it off to your co-workers will be followed by years of stress and obligation as you pay the thing off, maintain it, pay higher taxes, etc.)
Not sure how long you plan to stay in the house but it's normal for people to move, so this doesn't have to be your "forever" house and match with all your dreams. In fact, saving now will help you to make your next house even closer to what you really want, if this one isn't quite there.
Also: a consistent theme in my life and hearing from others is that it usually makes more sense to spend money/time to fill a need _after_ it is very very clear, not beforehand. So if you think you might possibly make it work in the cheaper place, I would highly encourage making a go of it, and it's likely you'll be happier there and that your own ingenuity will overcome the "flaws" (like you'll learn to cook rice in a pot if there's no longer space for your rice cooker, or you'll make a rooftop garden and cute window boxes now that you don't have a yard, or you'll just discover you don't need a dining room after all as you always assumed you did, etc.)
For size comparison, our home has 212 square feet per inhabitant and we are super happy in it. But the size, location, and price are aligned with our priorities. I'm sure you'll be able to find the home that best matches your priorities, whatever they may be.