The logical answer would be to extend the patio but that solpe will require qite a lot of work to do that. For me I would just do a deck right off the porch and then it would be easy to build all one level no steps down from the porch

Plant slender trees for (eventual) privacy from the neighbors' second-floor windows?

A retaining wall is the only way to deal with the slope and expand the cement patio, that seems cost prohibitive. A deck as suggested would give you the ability to expand your outside room as the footings would deal with the slope. I would prefer a patio to a deck all day any day due to maintenance but given your space and wants that seems to be your best bet. I would want a manmade product over wood for the same reason. A pergola could give privacy.

Simply Natural’s garden idea is lovely

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