This all depends. Your kids will be totally fine sharing a bedroom for the next five years. My sister has 6yo b/g twins and they still want to share a bedroom, even though they could each have their own. My kids are 3 and 4 and I don't think that (all else equal) they need much more space than they did last year. However, they are home with a nanny now (rather than being at preschool) and that takes up a bit more room. For example, I bought a bigger table for their arts and crafts projects, etc. I know that you said that your arrangement with your parents cannot last forever, but could it last for another year if there is no full-time preK3 option next year? There is really no need for an expensive private preschool if you have your parents to watch the 3yo (and the younger child). I would probably wait at least another year and make the decision then. Who knows, maybe the real estate market is going to cool down. Not that you should take investment advice from a stranger on an anonymous forum, but I would not buy right now. We wanted to be closer in, so we compromised on space. No regrets here. I also have friends who have more space further out and they are happy with their decision as well. That's just personal preference.

For my kids -
Ages 2-4 they were happy playing underfoot in or near the kitchen / living room
Ages 5-9 were peak years for space needs - bigger toys/games taking up the entire living room, big Lego projects, backyard playset
Ages 9+ they shifted to more time in their own rooms (this is where having separate bedrooms started actually making sense) or going for bike rides / etc off our property. I finally got my living room back

DL has thrown a wrench in things. We have a desk set up in each of their rooms, so now it actually is really helpful for them to have their own rooms. But I sincerely hope we won't still be in DL when your kids are in school!

There's less crap as they get older -- bouncy seats, big high chairs, bigger toys. You can get away with a booster seat tied onto a regular chair. The changing table will go away. I find they have fewer toys that they play with more and clothes last a lot longer so you don't have to have the next size up sitting ready. Diapers and wipes take up a fair amount of space and those will be gone. So in general I would say you'll need less space as they get older. I would stay put if you can.

Not sure if this a real estate or parenting question. We have 2 under 3 and live in a 2 bedroom apartment that is 885 sq feet. Both parents work out of the home (even during covid) and kids have a mix of grandparents and a babysitter (in the apartment). So far this is working but I'm not sure if we are being naive about what the next few years looks like in terms of covid and how kids use space when they get older. We planned to buy a house in a few years (5ish). We did start looking now but the market seems insane and if we move we lose our current child care arrangement and have to find a new one which seems daunting. I'm worried about the winter and worried if school is not full time next year we won't have prek3 and will therefore need to put older one in expensive private preschool (no inexpensive options near us and grandparents can't keep up the arrangement forever). Should we but a bigger place further out or smaller place near in or just stay? Does a 3 or 4 year old use more space than a 2 year old? We luckily have access to good outdoor options very nearby by not as easy as a fenced backyard (but maybe similar to unfenced?)