I think you should show the data to support that claim. It sounds like rose colored glasses.
Just to pick on one of your statements, you say "houses got smaller". Really? How big was the average person's living quarters in 1920? Your then-wealthy grandmother may have lived in a big house, and the 1920s houses that survive today are often the larger and nicer ones.
But what about all the people living in shotgun shacks, urban tenements, apartments with Murphy beds, boarding houses, poor families crowded many to a room?
Even if you just consider single family houses, we know that new house construction only got larger from 1970 to the recent past.
http://www.census.gov/const/C25Ann/sftotalmedavgsqft.pdf
And here in Portland, there are 1920s neighborhoods which survive mostly untouched. In the workingman neighborhoods, the houses are small bungalows of 1200-1400 sq ft - very cute and charming, but not "large".
My neighborhood dates from that era, it was one of the "luxury" developments at the time - not a "working neighborhood" by any means - and even here the typical house is 2000 sq ft of original living space (before attics and basements were built out in recent years). That's a small house compared to the luxury residential developments of today.