\layout {
  \context { \Staff 
    \override VerticalAxisGroup #'minimum-Y-extent = #'(-1. . 2)
  }
  \context { \Lyrics
    \override VerticalAxisGroup #'minimum-Y-extent = #'(-1.0 . 0.7)
  }
}
  
sMusic = \relative c'' { \repeat unfold 3 { c c c c | \break } }
aMusic = \relative c' { 
  % smallest spacing, nothing between staves
  c  c c c |  

  % Using DynamicLineSpanner works, but does not move the dynamics inside the staff:
  c
  \once \override DynamicText #'X-offset = #-3
  \once \override DynamicLineSpanner #'Y-offset = #4
  c\f c c |  

  % Using extra-offset moves the dynamics inside the staff, but the layouting 
  % is done before, so the staves are spaced far too much and there is no way 
  % to get them closer together...:
  c
  \once \override DynamicText #'X-offset = #-3
  \once \override DynamicLineSpanner #'Y-offset = #4
  \once \override DynamicText #'extra-offset = #'(0 . -2)
  c\f c c |  
}


sLyrics = \lyricmode { a b c d e f g h i j k l m n o p q r s t u v w x y z a b c d e f g h i j k l m n o p q r s t u v w x y z }
aLyrics = \lyricmode { a b c d e f g h i j k l m n o p q r s t u v w x y z a b c d e f g h i j k l m n o p q r s t u v w x y z }

\score {
  \context ChoirStaff <<
    \context Staff=Sopran <<
      \new Voice=SV { \dynamicUp \sMusic}
    >>
    \new Lyrics=sL \lyricsto SV \sLyrics

    
    \context Staff=Alt <<
      \new Voice=AV { \dynamicUp \aMusic}
    >>
    \new Lyrics=aL \lyricsto AV \aLyrics
  >>
}