For e.g. if I built a library but now want to build an armory instead, can I replace it? LOL!

Only if you saved it before you built it and want to do it all again.

I know its only limited content and good value for what it is but the ability to demolish and rebuild parts of the house would have been a welcome and realistic choice-Bethesda take note!

I agree, put it on the drafting table. Warn that any funiture and any container content will be destroyed then remove it.
Wonder how hard it would be to mod in? Should be possible to just hide the element again.