The new proposed minimum is about the same size as my flat here in the UK, and I know plenty of people living in smaller places than mine.
Here's an interesting chart about average sizes in a couple of different countries, the difference between the UK and the US is huge: http://www.apartmenttherapy.com/average-home-sizes-around-th... (this is houses, but most apartments I've visited in the UK are about the same size as the upstairs of a house, so splitting the figure it half seems a good estimate for apartments)
I would theorise that the majority of people living in small apartments are the sort of people that are young and still finding their path in life (career, education) and so don't spend much time in their apartment (most young people that have their own place don't have the luxury of spending 8 hours a day at home, excluding sleep) so they're not that bothered by living in a small space. It's where they sleep and eat and that's about it. If you're a 40 year old that has a career and family living in 200 square feet would seem insane.
[1] http://www.godfreyinv.com/portfolio/17-the-upper-drive/apart...