Thanks for the photos, they help clarify your situation. A few points. The front wall, going by the brickwork, is approx. 700mm high. You could get this down to 600mm by sloping the lawn or garden slightly. Doing this should be fine and then you can pass the construction off as complying and replacement of existing wall. I'd assume the garden in front is part of the council nature strip in which case you can't move forward. I can't see neighbouring front fencelines so it's not obvious. Often there is up to 600mm between the boundary and the footpath but not always. I think there would be too much gabion. Contact a landscaper for a comparative price with sandstone. Obviously it's cheaper if you were intending to build the gabion yourself. The driveway is quite narrow. Widen it towards the lawn, not the boundary. You need to leave that narrow garden for softening of the fence in particular. A picket fence along the front should look fine in white, if that colour appears on your house but the paling fence should not be white. If you are doing a major reno of the house then the landscape items would be best left until the major work is complete. Then you can consider the landscaping in relation to the new look of the house.

excavating this space without risking fences or the shed collapsing or damage to the house needs expert advice...consult an earthmover and engineer for advice about best options but an extension need not be built at the same level as the existing house ...a split level design could be worth considering and you still need an engineer to advise about the safest way to proceed but your earlier photos showed an area of lawn...why not post a plan of the block and the house with dimensions to invite various ideas for extensions

Do you have any photos of your area

Hi Mic, Seek out a draftsman or designer who has focus on sustainability and can conduct an Energy rating as part of the design process. A designer who has their Cert Iv in NatHERS is qualified to assess and design for these issues. On a rough calculation - standard WA construction, 25° roof, 500 wide eaves, ceiling at 2.435h then a setback of 1.700 should allow for the sun to strike the floor at equinox, if you have full height windows. Best case scenario place the house between 1.7 to 4m from the fence/retaining. The further it is the more sun strikes the slab during winter. You question about increasing the ceiling height - yes that is a good work around, going to to 3m high may cost more than your think. Another 3c/300mm in height will give you more sun penetration in the winter if your windows are raised and would be a more cost effective solution. But there are many variables such as planning, engineering, buildability and cost. Speak to an qualified designer or architect and they will have the knowledge and experience to deal with all the conflicting factors.