I don't think it is likely that the court will order 50/50 lives with order on the basis that the father is living in a studio. Two girls of 13 and 11 should have a bedroom to themselves at least, for privacy purposes, nevermind for home education. So I think the father's application is wholly unrealistic. With just a studio, I would think the court would think perhaps one or two nights a fortnight would be manageable, but not more than that as it's not an ideal living environment and certainly insufficient for four people.
It may be, at the DRA, that the judge decides a further s7 welfare report is needed. I would certainly state that in my view this is necessary. The previous order is 5 years old and the children are significantly older, one a teenager already, and therefore what was suitable for all three then, clearly is no longer suitable now - notwithstanding that the accommodation has shrunk massively. The s7 welfare report will permit the children to be able to speak directly to the CAFCASS officer, which means their wishes and feelings will be ascertained. The 13 year old's wishes will be very persuasive to the court, and the other two's views will be of interest, but not determinative. The court will certainly want to hear more about the 11 year old's difficulties as those are extremely concerning and her voice must be heard on that.
Hold strong and don't agree to any changes currently - tell the father you will await the court's determination as the issues are too concerning to just ignore them. Don't be intimidated by having to return to court, the judge will have plenty of experience of dealing with litigants in person. Unfortunately £500 probably isn't enough to get representation for a hearing, and in many cases will pay for around 2 hours of advice, so I'd suggest saving the money for now and just prepare to represent yourself. You can write a position statement for the hearing, which details why the contact changed, what your children want, and details that the father's accommodation is now vastly different from before - and set out what timetable the children have told you they'd like.
The judge will, in my view, want a s7 report because what the father wants is so out of sync with what you say the children want.