What is the ruling of Islamic law regarding a mother's absolute refusal for her son and his wife to live in a separate house, given the availability of alternatives and the wife's suffering from shared living arrangements?

An independent dwelling is one of the wife's rights, obligatory upon her husband. She has the right to refuse to live with his family. If the wife accepts living with the husband's family, there is no harm, but she has the right to withdraw her consent at any time. In your case, the husband must provide an independent dwelling for both of you, because remaining in the family home will lead to a loss of comfort and exposure to falling into the unlawful. Obedience to the mother in contradiction to this is not obligatory.