From 1900-1940 people lived, for the most part in close quarters, families members constantly interacting, in homes with just a few rooms.  The first suburbs were built around this ethic as well, middle class homes from 1945-1960 were small, by today's standards.  These "first ring" suburbs, as they have come to be know in many US cities, were built quickly, using the mass production methods developed durring WWII.

As lifestyles changed, and the ‘burbs expanded builders opened up the scale and size of their homes.  A shift occurred in the 70's and 80's homes with 3-4 bathrooms appeared, foundations expanded and lot size grew.  City planners were hip to the trend.  The average or typical lot size grows as you move through the 20^th century. 

Some have argued these larger homes turn families into communal recluses all living independently, with TV's in every room, a bathroom for everyperson, and the ability to come and go without running into each other.  I would argue that the public demand for such housing drove the trend, and blaming the deterioration of the traditional family on our housing choices is silly.

Regardless of where you place the blame, people are moving back into the city and into smaller homes.  The trend toward massing, and McMansions within McMansions, has become old hat, as "cookie cutter" outer ring suburbs begin to resemble a prairie dog colony more than a traditional neighborhood.

Many families today are building new in the older historic neighborhoods.  These new homes are smaller than their suburban cousins but sometime they still resemble them stylistically, and that irritates many of the neighbors.  But the trend has a real 'human' aspect to it that I feel we overlook all too often.  The need for human interaction has led to this urban renewal and I find that quite comforting.  Human beings have evolved as social beings of highest order.  Humans more than any other mammal require constant interaction with other adults to sustain ourselves both emotionally and physically. 

Many of today's upper-middle income buyers are forced to weigh their desire for a home with modern features, with their desire for an established tightly knit community.  Either stay in close to the city, and live in a pre-WWII style home, or move to the suburbs for everything a home owner could want and more.

Hence the trend of tearing down smaller, or lower value, homes in good neighborhoods, on good lots, and building new. Yes, the homes do tend to be smaller, than their suburban cousins, but they are much larger than their neighbors.  And, yes, it's great to see people value "city life" to such a degree.  God only knows what would become of many urban school and medical systems, without this reinvestment, and revitalized tax base. 

Many locals however, rally against replacement housing in their neighborhoods.  They argue that the trend drives property values up rapidly, displacing many of the neighborhoods oldest residents.  And by re-building the neighborhood we may loose the charm and history that make the neighborhood so wonderful in the first place.

New homes, with all the modern features and amenities, do tend to be expensive.  And as a neighborhood sees more and more new homes go up the relative properties values do increase accordingly.  In some case this can force people out of their homes, if their taxes rise too high it may break the budget of a family on a fixed income.  But the alternative if far, far worse.  Would anyone actually suggest we somehow out law community reinvestment, so that no one's property taxes rise to high.

As far as historical preservation and "charm" go, I couldn't sympathize more.  I live in a 1901 built home on the old trolley lines, long since abandoned, in a neighborhood that was once a "lake retreat" for city folk, and is now as "urban village".  I love my old, historic home, in its charming neighborhood.  Whats more, I do not fear change, and I do not spurn diversity.  The fact that we have this "charming history" is due entirely to the rapid series of changes our past, all of which left their marks on the face of the neighborhood.  Replacing, and remodeling homes, does not in anyway adversely affect the character of a neighbrhood.  Character lies with in the hearts of the residents not with in the buildings.