small, cozy space vs the cavernous room with no furniture

One of the problems with purging half your furniture and then buying a bigger new house is that you might end up with a room like this:

There is a sofa and a side table in the living room.  And that's about it.  (This lovely blank canvas is the room you walk into when you open the front door.  Welcome to my zen abode, and please seat yourself on a tatami mat.)  It is not currently in my budget (nor will it be for a while) to furnish this room.

I thought that this room would serve as the playroom for a while. You can see the play kitchen on the right side of the picture, and the rest of the toys are on the opposite wall.  All the toys are sort of in the middle of the room, and then there is a step up into the dining room.

The only problem with this room acting as the playroom is that the kids have zero desire to play in here.  "The stripe rug is SO ITCHY, MOM."  I removed the stripe rug, but to no avail.  The kids gravitate towards the furnished family room on the other side of the house, dragging their toys with them.

I think that the room probably feels a bit cavernous and empty to them.  It is a pretty big space, especially without furniture. Plus, my kids like to hide in closets and make tents under chairs--they like small, enclosed spaces.  Today I opened the pantry to find Princess and an orphanage of dollies playing on the floor.  "What are you doing in here?"  "I live in here."

As she has taken up residence in a closet that is under the stairs, we are expecting her admittance letter to Hogwarts in a few years.

Which brings me to the furnished, cozy family room.  It is not finished or decorated, but it does have a soft rug and furniture.  The day we moved in I had two bookshelves set up at the end of the room (I don't have a full picture, but you can see part of it.)

These were the shelves that had our decor items like ginger jars and thingamabobs in the last house. But, the more I thought about it, I wanted two things in that space that the decor-filled shelves would not provide.  First, I wanted the childrens books in the family room, and the other bookshelves in the room are already full.  Second, I wanted a place to hang the kids' art that wasn't in a hallway, and if we used low bookshelves it was a perfect spot.  I want this house to reflect how we live, not how decor looks pretty.  The decor needs to serve us, not the other way around.

So the decor shelves moved out to the garage (as did the decor, it remains for the moment in boxes in the garage), and two low bookshelves moved in.  I have plans for another Ikea narrow bookshelf between the two that will hold crayons and coloring books.

But!  Speaking of decor serving us, not the other way around...since my kids are bringing all the toys in here anyways.....I could move the toys into that corner, instead of the books.

Problems: where do the books go? I greatly miss the landing at the top of the stairs in the old house, where all these books lived in the last house.

Furniture placement and spatial arrangements are not one of my many skills. I generally get there in the end, but it can take me a year or more of living in a place before figuring out a good furniture arrangement.  I am sad that I am not one of the "here's my fully completed beautiful room with professionally taken photographs" kind of girl, but you will all have to suffer through being my sounding board for ideas.

What would you do?  Keep in mind you have no money to buy furniture.  (You might have the budget for a large teepee in the living room, that would be a fun cozy space, yes?)