If you were, as a GM, designing a town to have a wide variety of small sized races...

[Gavinfoxx]

...for the simple fact that they can build everything on roughly the same scale, and it makes the construction and architecture better, what races would you include? What if you wanted to make it extremely cosmopolitan, bigger than 'a small village' and was actually 'a large town'? and not to the 'just gnomes' or 'just halflings'? What sort of setting details would you include to allow traditionally monstrous races in? How would they have made peace, and behaved? What about mitigating religious intolerance (like the gnomes vs kobold thing)? Perhaps schismatic/heretical religious beliefs? Or just a completely new religious movement?

[RogueJK]

You could lean into some of the tropes/intolerances... Something like an early Industrial Revolution town, with some of the Gnomes as industrialist factory owners pushing mechanized innovation and prosperity while utilizing (or taking advantage of) the cheaply available labor of the Kobolds and Goblins, who have come to the town for a chance at a better life than merely scavenging and squabbling. Meanwhile, many of the "country bumpkin" Halflings who live on the outlying farms want to stick with their old-fashioned agrarian ways, and like having the Kobold/Golbin labor for farm work, but take a dim view of some of the Gnome's technology and apparent move towards exploitation of these monstrous races. The Gnomes have to placate the Halflings because they're the primary source of food for the town, the Halflings have to play nice with the Gnomes because they're the primary market for their produce and also often have some handy ideas to increase production, and the Kobolds/Goblins have to play nice with both because they're the source of their jobs. Sort of a tenuous equilibrium, but with a bubbling undercurrent of dissatisfaction on all three sides that could boil over into Revolution or Monopolization at any moment.

The party could team up with some Halfling Luddites and Goblin/Kobold revolutionaries who are attempting to sabotage the Gnome's push towards technology and disrupt their power, or team up with the Kobold/Goblin union organizers and their Halfling patrons who are trying to peacefully negotiate for better pay and living conditions out of the Gnomes, or choose to team up with the Gnomes to stop the violent rebels and secure greater wealth and prosperity for the town.

[MaxWilson]

In any town with a wide variety of races, each in small numbers, I start to worry about generic viability and inbreeding.

[Gavinfoxx]

Not each in small numbers, necessarily!

[Amnestic]

I'd centre it around the 'monstrous' races (kobolds, goblins, maybe xvarts?) who established a combined village/town on the back of discrimination or aggression by so-called civilised races, banding together for protection. Halflings and gnomes would have been actively invited by the leadership.

The gnomes in would be arcanists or scientists who push the limits of what is accepted among "society" (necromancy, demons, etc.) who wanted a space they could practice their magic freely. They receive space and materials in return from donating their magical/technological expertise.

The halflings I would make a refugee group after their village was destroyed by [some sort of large monster]. Their group would have found no safe haven among the typical cities (perhaps the leadership saw no profit in it) so Smalltown offered a new settling location to help boost their numbers and give more of a veneer of civility as a shield against being wiped out. While they might not always get on, there's a debt felt by the halflings that keep them around (for now).

The town itself would be a mixture of above ground buildings, farms, etc. and underground tunnels/farms, with the majority being underground, such that its true population is far larger than you might see if you came across it on the road.

[Xervous]

In any town with a wide variety of races, each in small numbers, I start to worry about generic viability and inbreeding.

This does raise a lot of interesting questions, one already hovering overhead is the nature of the surrounding towns. If we’re not looking at BFE there’s bound to be some cross pollination.

[jjordan]

I've got all sorts of settings like this.

There's Gedat-a-Kherfan (Kherfan's Mine) which was built by dwarves on the side of a large rift. There's human scale building up top, but the meat of the town (and the mines) is scaled for dwarves. Halflings and gnomes live there quite happily and there's a garrison of Kobolds from the central government (mostly tax collectors).

There's Morndina-a-Thornin (Thornin's High Place) which is built on the side of a mountain and engages in coal-mining on a large scale. Many of the exterior buildings are built to dwarvish scale and there are, again, the halflings and gnomes that fill out much of the population.

High Glade is an intensively farmed mountain valley where the population is predominantly halfling but there are a large number of gnomes and a fair number of dwarves. Again, human scale works down by the rift road (the equivalent of a truck stop) and the rest is built to halfling scale.

Seudan Uaine (Green Gem) is an emerald-mining town built by gnomes but with a new influx of kobolds. There's some friction between the two communities driven by preconceptions and genuine cultural differences.

I give a disadvantage to big people fighting within the confines of these smaller areas.

[Chugger]

It could be opposite day, so to speak, and this could be an evil small folk town - the gnomes and hobbits have gone bad, or are outcasts from "good" areas, or their ancestors were. The Goblins and Kobolds could set the pace here and tolerate the evil goodies.

Or it's a town founded by gnomes some time ago, and the main economic driver here is mining. The vein they mine - whatever it is (copper, tin, coal or w/e) is sandwiched between two very hard layers of rock that are about 3' apart, so even dwarves struggle to mine there (but can, dwarves can mine anywhere). So some smallish dwarves live here, but hobbits were brought in initially to be the cheap labor. But the hobbits got rich over the years and set up other types of town work - shops where they make and sell things - and aren't willing to mine any more.

So goblins were recruited - goblins were screened for morals and had to be not evil, but maybe some non-evil goblins were found - necessity caused the townsfolk to realize they'd been stereotyping goblins, who aren't all "evil", tho some are. Maybe a gnome paladin has to "zone of truth" check new arrivals often. And recently kobolds - disrupted by a gnoll invasion of their lands - are available and moving in, but one of the gnomish "mine barons" is a little corrupt and wants cheap labor, and maybe he's importing kobold labor and rejected goblins, too without a care as to whether they're evil or not. Maybe some "good" kobold and goblins have formed their own little union because they want to stay here, they like it here, and their union or gang fights evil kobold and goblin gangs in the slums.

So you'd have the upscale parts of town, and the slums where the new arrival miners live - and maybe some newer arrival hobbits are here too and perhaps resent that their brother hobbits look down on them and don't help them enough. All sorts of conflict is possible. The richer factions might live on higher ground, surrounded by walls - a cliff - a river - other barriers.

[thoroughlyS]

Unfortunately you only have 4-5 races to choose from: gnomes, goblins, grungs, halflings, and kobolds. Maybe you could stretch things with dwarves as well? So basically gnomes and halflings in a dale (like in The Hobbit), gnomes and dwarves in a mountain, goblins and kobolds if you think they could actually tolerate one another, and grungs and kobolds if you just want animal-looking people. Past that, I don't really think you could do anything too special.