Most new developments have planning requirements for a certain percentage of smaller properties. In the field near us, it's mostly 3/4 bed detached houses, but there are also some 1/2 bed flats/terraces too - referred to as "affordable homes" in the planning documents.
But 3/4 bed new builds are only popular because of "bed blocking" by singles/couples continuing to live in 3/4 bed properties long after their kids have left home. We need to find ways to encourage such people to move. There is a point where they become too old/can't be bothered to do the physicality of moving, i.e. sorting through decades of clutter, sorting out the loft, not to mention the emotional aspects of getting rid of decades of memories etc. It's not always financial, although the costs of moving, stamp duty, legal fees, estate agents, removal men, etc is very high. We really need to explore why older people don't want to downsize and do whatever is feasible to support them. Get them to downsize, free up existing 3/4 bed housing stock, and then there'll be less demand for 3/4 bed new builds, meaning more demand for smaller properties, which in turn will force developers to build smaller properties. Taxation can be part of that, but like I say, we also need to find ways of helping with practicalities etc.