Thankyou for the input. We are also in P.erth , how crazy are these prices!
i'm certainly leaning towards renovations we worked out the cost would be the equivalent of us buying a 600K house and in the areas we want to buy in for that price you get the same size house and block we are on currently.
However if it's not going to be financially feasible we will consider selling and moving further into the hills.
At at the moment we probably won't do the master bedroom addition because we don't really need that until we have teenage aged children. So there wouldn't be work going on inside the actual house we live in except removing the old kitchen.