The thing is, in my estimation, in most places the demand is so high that whatever makes the builders the most is what will get made. Which isn't necessarily what the majority of the market demands. Builders profit more off high square footage and buyers -- desperate for just someplace to live that's not the rental market -- will snatch it up. A 4 bedroom house in my market (granted one of the hottest housing markets in the US) is usually gone just days after listing.

Or, to use an analogy, if you open a water stand in the desert and sell flavored water for $5, it doesn't matter if the buyer really wanted plain water for $1, they are still going to buy your water since it is the only water available. And why start offering plain water when the flavored one sells out instantly and makes more profit?