On a cobblestoned lower Manhattan street near the approach to the Brooklyn Bridge, a four-story house is about to go on the market for $5 million. The widest room measures 10 feet.

“It is a little bit of a jewel box,” said developer Andreas Giacoumis. “Small spaces are the way of the future.”

For most Manhattan residents, the living has always been small. Now the market has cooled, a new wave of construction using scraps of leftover space is taking cramped living to the extreme. Homes are being wedged into spots that once might have served as a few parking spaces. Or storage.

In East Midtown, architect Gene Kaufman is dreaming of a house on a lot 10 feet wide, one of the narrowest lots in Manhattan, as a test of living on a small scale. The widest rooms would be about 8 ½ feet wide—though the house would come with a small elevator.

In April Mr. Kaufman, a designer of hotels, paid $1.95 million for the 10-foot-wide site left over from the construction of a 29-story Hilton Garden Inn he designed on East 52nd Street off Third Avenue. (Rooms at the hotel are 11 and a half feet wide, according to Mr. Kaufman.)