We are building 34.5 squares and have 2 kids, it fits on our block nicely and will still allow a small backyard for the kids to play in. If we had gone bigger, there would have been no yard left and we both don't like 2-storeys.
For us it was all about having a design that suited our family lifestyle and what was financially viable. Our mortgage will only be 1/5th of the property's value. This means that we will have very low mortgage repayments allowing us to have spare cash to go on holidays and go out with our kids at weekends. If we built a McMansion, we would have ended up being a slave to the mortgage. We only have an average income, so we have built comfortably within our means and it also means I can run a small business from home without having to return to work full-time, as I wanted to stay at home and raise our kids before working again. It's all about priorities for us However, if we were earning the big bucks and in very secure jobs then we would probably have bought a larger block and built a bigger house, just because we could.
I don't think there is anything wrong with a couple who wants to build a large house now for the extra space or a future family. If you can afford it then go for it. My only advise is to be very careful and do your homework for future changes, such as the actual cost of raising kids, going down to 1 income for a while and the possibility that interest rates may go sky high again. We factored all of this in and no matter what happens with the economy we have the peace of mind knowing that we wouldn't lose our house because we haven't stretched our budget, and our kids won't have to go without