Is it better to remain in the same situation to satisfy the mother's psychological need and the father's financial need, or to waive the condition and rent a separate house for the wife and children, given that the wife's actions are harming the mother?

The first option is for the wife to remain in her parents' home, while striving to reconcile between her husband and her mother with wisdom. If she is unable to do so, and fears the escalation of the conflict, then the first option is for them to live in another home, with the husband keen on honoring his parents and visiting them.