The 16GB model is there to make the entry level more affordable, even although new iPhones in general a pretty expensive. Yes it would have been nice and long overdue for the basic storage to be upped to 32GB, but just not this year. I think it will happen next year with the 7. The problem is the average selling price of the iPhone, and what Apple don't want is a large majority of people happy to buy the entry level device, they want most people going for the middle device (ie 64GB). So next year, I wouldn't be surprised to see only 2 sizes of iPhone. 32GB and 128GB similar to the iPad Pro.
I personally have a 5s with 16GB and at times I struggle for space, but this is more often than not down to photo's and video's which normally sit around the 5GB in size on the device, and with my basic iCloud account at 5GB, it's always full. Apple is currently charging an extra £80 for the upgrade to 64GB from 16GB with the new iPhone. What has pleased me is the changes to the iCloud pricing and sizes. For under £10 a year, I can now get 50GB of cloud storage, this will work for photo's and videos thus reducing the need to have 5GB of space on my device for these items. Also with the new App-Thining strategy within iOS 9, hopefully we will start to see smaller Apps. I personally find it ridiculous that some Apps are 2GB+ and seeing as the higher resolutions and textures are really only required for larger screen devices, primarily iPad's, hopefully we will see smaller more streamlined Apps/Games on iPhones.
In short, although annoying that there is a 16GB model again, I can totally see the point of having it and with reduced cost Cloud storage, there is less need for people to push for a 64GB model as a basic.