The average size of blocks sold in Perth in the 12 months to September was 415sqm, down 9.2 per cent on the previous year, with Kwinana town centre recording the smallest median land size of 200sqm.
Real Estate Institute of WA president David Airey said the trend would affect future generations.
"Today or tomorrow's generation are never going to see the benefit of a nice big block of land that children can have fun with," he said.
"While urban infill in older suburbs is desirable, we need to make sure we preserve suburbs with large blocks so we don't lose the great Australian backyard."
Blocks of 500sqm or less now represent 70 per cent of Perth lots, up from just 8 per cent two decades ago when the quarter-acre block (1210sqm) was common.
Mr Airey said developers were squeezing as many blocks as they could out of subdivisions and it was a "quirk" that new developments in fringe suburbs had some of the smallest lots.
UDIA WA chief executive Debra Goostrey said the trend was driven by affordability and government policy, not developers.
_Ms Goostrey said the minimum lot size permitted under planning laws had fallen from 597sqm in the 1970s to 100sqm under zoning changes that came into effect in August. _
Dale Alcock general manager Dean O'Rourke said the move towards smaller blocks was linked to affordability, which was worsening because of land supply shortages and red tape.