There's an article in today's Herald about small flats being built in Auckland's CBD.
I can't see what's wrong with small apartments if people are willing to buy/rent them. I owned a studio flat in London for a while - I can't remember the exact size, but I'd be very surprised if it was over 30m2. It was perfectly adequate for my needs at the time and it certainly wasn't a slum - like most of my neighbours, I was a young professional who was willing to trade off a shorter journey to work and a lively neighbourhood for the extra space I would have had in suburbia.
I suspect that a lot of Aucklanders are opting for a personal, if small, flat over a shared house, which is perfectly reasonable. I can't see why Auckland City is preventing people from making this choice by imposing size limits.