I do think we'll want to upsize to get a full guest room and maybe another half-bath, a 4bd would probably be perfect for us. But there's no urgency to move, bc. we have a good deal and it's actually quite comfortable - and very low maintenance.
Living in a smaller space you just learn to be efficient and not to collect junk. We have plenty of toys / things / whatever, it's not like we're zen minimalists, we just don't keep very much "stuff" that we don't use regularly. That's actually really nice.
We know a lot of families in the city that live in even smaller spaces. I think my takeaway from this is you can make whatever work, you just adapt to the space you have. I'm not saying it's better necessarily, it just really depends on all the other variables in your situation. For my family the nice neighborhood, very short commute, and affordable / low maintenance space is a win. Other people would choose differently.