Welcome to Tiny Homes, an idea that is more popular with minimalists than with neighborhood associations and zoning boards. We'll point out the fun parts. You'll have to check out the logistics and legalities - but this one is iconic and historic and may be worth the effort.
If you know tiny houses, you probably know of Jay Shafer, the man who popularized tiny houses on wheels through this business Tumbleweed Homes. One of the homes he built is up for sale in Oak Harbor on Whidbey Island. Owner and resident Cathy Witt has been open about what it is like to live in a 117 square foot tiny, and you can read about it in her blog. Or, you can skip the story and buy it for $35,000. Instead of one sleeping loft, there's an extended loft that work fine for sleeping, but it also covers a small room downstairs (er, downladder) that can be a small bedroom or an office; and there's a second loft that is either a hideaway or a triangle of storage. Connecting the two lofts is a shelf that either holds books, is a walkway for cats, or a place that does both (possibly with occasional air drops of novels as a cat bumps by.) The extended loft also covers the bathroom with a small or RV version of the toilet and sink, but also a full-sized shower. Storage is a biggie, especially considering how often it is pointed out in the video. Shelves, closets, under-counter spaces - storage is big in a tiny home.
One of the features that set Jay's tiny homes apart from sheds and shacks was the level of build quality and style. With so much less to build, it is easier to make sure everything built is built well. The outside is cedar siding and metal roofing. The windows have awnings and screens. The porch has standards and rails and posts that mimic a much larger house. Just don't expect to stretch out in a hammock out there. As for the systems and such, when in doubt, think RV. Appliances may not be full-size, but they are functional and are built for bumping down the road. Imagine how much longer they will last if you sit still.