More than a fifth of the properties fell short of total space requirements when the number of occupants was taken into account.
Floor space in the average British property is just 85 sq m compared with 77 sq m in Greece, 88 sq m in Ireland and 98 sq m in the Netherlands.
Flats and terraced housing most likely to be the most squeezed, according to the study.
“In extreme cases, overcrowded homes can cause physical illnesses such as asthma and mental illnesses such as depression,” Malcolm Morgan, co-author of the report said.
“Less extreme cases can cause anxiety or stress, or impact on children’s social and emotional development.
“Lack of privacy resulting from lack of space can degrade family relationships, and prevent residents from entertaining guests and engaging in social activities in the home.
“People have a strong emotional reaction to spaces, and people’s perception of their homes can affect their quality of life.”
The findings undermine the government’s ‘bedroom tax’ which penalises social housing tenants who are deemed to have spare rooms, according to the researchers.
With households receiving housing benefit the most likely to be undersized, the authors of the study claim the extra bedrooms are often used for other purposes due to limited space.
“When the bedroom tax was introduced, there was a lot of implication that those living in houses with spare bedrooms were doing so out of selfishness,” said Malcolm Morgan, report author.
“But what this research shows is that in most of the UK, you simply have to under-occupy houses in order to have an acceptable amount of living space.”
He added: “Spare bedrooms are a misconception in many homes, as the lack of space means that any extra bedrooms are needed for other uses.”
The removal of space standards in the 1980s, the high value of land and the low number of homes built by public authorities and housing associations in recent years are all cited as reasons for the lack of space in UK properties.
Mr Morgan, a PhD student at Cambridge’s Department of Engineering, said: “The amount of space in a home influences how residents live.
“For example, how and where people prepare and eat food, what furniture and activities can accommodated, how much privacy people have, and whether necessary changes to the environment can be made if the residents circumstances change.”