Homeowners in the southern Perth suburb of Palmyra say they feel like they are living the movie The Castle after receiving letters to say their homes may be demolished to make way for a highway upgrade.

As part of planning for the $1.6 billion Perth freight link project, due to start next year, Main Roads has written to around 20 residents whose homes border the northern side of Leach Highway in Palmyra.

The letters inform them their houses may be compulsorily acquired and demolished.

One recipient Tania Smirke, told 720 ABC Perth she had no idea it was a possibility and said she and her family were completely shocked.

"We knew the intersection of Stock Road and Leach Highway was going to be upgraded, but never have we ever received notification that our house was directly in that line," Mrs Smirke said.

The Smirkes, who have four young children, have lived at their house for 18 years and have recently completed a four-year renovation project, adding a second storey to their house.

"We love our area and we love our neighbours. We love our house and we don't want to move," she said.

Ms Smirke said the residents of Moody Glen, the cul-de-sac where she lives, are banding together to fight any plans to demolish their houses.

She compared her situation to that of the fictional Kerrigan family from Australia film The Castle.

"We are willing to do anything to stop it going ahead. We just don't want to lose our homes," she said.

"It's hard to believe that one day your life is going to play out just like a movie."

Ms Smirke said local residents would prefer that a tunnel be built to take trucks through the area.

Tunnel option under consideration

Mark Hazebroek is senior project director for the Perth freight link and says options like a tunnel are under consideration.

He said the letters were sent out because "we wanted to let people know as soon as we could and make sure there were no surprises."

"Our team is talking to people who live along there and we are happy to meet with them one-on-one to discuss their particular issues," Mr Hazebroek told 720 ABC Perth.

"And [we will] certainly explain the other options as well.

"Obviously those people are concerned and we do understand that."

The planning team are currently investigating the costs and impacts of both the highway expansion and a tunnel, and a decision will not be made until the end of the year.

"Tunnels are more expensive both to build and operate but it's all a balance," Mr Hazebroek said.

"We need to look at social issues and environmental issues and make a decision overall about which is the best option."

The final decision is expected to be announced in around six months' time.

Relocation stress

Nearby resident Kevin, who is 88-years-old and has also received a letter, said the news affected him badly.

"I lost my wife five years ago and I live here on my own. I can only drive a short distance," he said.

"I'm close to my shops, my doctor and my church.

"I'm happy here and I thought I'd be here for the rest of my life and then two weeks ago this letter comes out of the blue and this has really rocked me.

"If I had to move out I don't know where I would go or how I would do it."

Mr Hazebroek said if compulsory acquisitions happened, homeowners would receive fair market value for their properties.

"We would assist people with relocation and make sure they are not out of pocket," he said.