However little space one has, one finds a way to make it work.
When I lived in my one bedroom flat, my front room was the studio in which I'd set up the drum kit and record all the other instruments. I had a Fender Rhodes in there and a Hammond organ and when they weren't being used, they were just pieces of furniture. The double bass, cello and drums were stored in my bedroom and instead of a wardrobe, I had clothes rails high up so I had some ground space. I also had the piano permanently in the bedroom. I got rid of the double bed and just had a mattrass on the floor. Percussion, guitar, bass and portastudio were in a tiny storage cupboard meant for a coat or two. I learned progressively on the go. Recorded 5 albums and more albums worth of stuff in that cramped set up. My front room was also my video editing room and the windowless bathroom was my dark room in which I printed and developed thousands of pictures. The equipment used to be stored in one of the kitchen cupboards.
When I got married and my wife and I moved into our first proper space, we had, what was, until our first child was born, an extra bedroom which I commandeered as the music room. Everything was in there and to this day {we were there from '99~2003} it's the only time I've had a dedicated music room. It was cramped but again, I worked out ways to make it work for me. The drums were permanently set up for the only time in my life and that was great.
In our current situation with two children {now 19 & 16} I've had to be a true guerrilla home recorder and utilize every little bit of space in such a way that it doesn't impinge on every one else, even though arguably, it does. The kids' room is where most of the recording takes place and it's where I'll set up the drum kit. I have an Arbiter flat~lites kit which fits into 2 hold-alls. In the little space next to the stairs I keep the double bass with our coats and just behind it is a cupboard that used to be this huge flue that used to carry the heated air through the flat in the days when that was the kind of heating here. I cut out a huge part of that metal flue and created a cupboard that houses my guitars, keyboard, basses, banjo and mandolin and my spare DAWs. It was wasted space beforehand and converting it into a toilet would have been daft {unless you don't mind hearing people crapping and pissing right next to the front room while you watch TV or chat
}. I have a really heavy isocab that I built and it lives in the kitchen cupboard, fortunately out of the way. I just run a couple of leads to there and play in the front room when I'm tracking loud guitar. And on occasion, I might do a vocal or guitar part in the bathroom, for some weird reverb. I say weird because the tiles are both shiny and matted and the bathroom is a strange shape.
My point ? Just that whatever you find yourself with, you have to get creative if you want to record. While it would be lovely to have studio 2 at Abbey Road, that's not the real world for many home recorders and I keep in mind that the Rolling Stones' debut album was recorded in a studio that had egg cartons on the wall and Horslips recorded their first album in a barn, while using the Rolling Stones' mobile unit. Space is an issue, yes, but nothing is insurmountable if you don't want it to be.