There's a problem with knocking down houses; people live in them and they might not wish to move. There's bags of space behind the Shoreham end though. An enormous stand could be built there which would be big enough for everyone, I'd have thought.
One thing for sure though. SUFC should never do a Bolton, Coventry or Brighton and move out of town. It's the city centre location and the shops and caffs on London Road that make the Lane special. Apart from Newcastle I can't think of another football ground so beautifully situated.