I get that all the time when I tell people my car lists at around £30k. They always act surprised and ask why I didn't get something bigger like an A4.
Why? I don't want or need anything larger than an A3. I don't have children and rarely have anyone in the back, nor do I ever need to lug huge amounts of stuff around. A larger car would simply be wasted space, cost more and have worse emissions and thus tax. I'd much rather have something smaller but spec the nuts off it so I have all the bits and pieces I want. Whilst I could have a decent A4 for the same money, it wouldn't be as well specced as my A3
The A3, and other small cars with good specs and available options, address a growing market. People who don't want or need a larger car but want the comfort, refinement, build quality and equipment traditionally found in larger cars. The A3 pretty much started this market back in '96 (I'm ignoring the 3 series compact as that was a joke) and it's been growing ever since. You only have to look at the quality of cars like the A3 & A1 or, with other brands, the BMW 1-series or Mini, to see that people want smaller cars but not "basic" ones. The cost of fuel and increased focus on emissions for tax purposes is only going to drive people further down this route.