To make friends he could join a sports team or other out of school activities (Scouts etc).

Academically you could extend his education at home, either you doing it yourself or hiring a tutor (it would still be cheaper than Private school).

If he becomes unhappy I'd change schools though.

Sorry, but how do you know that he won't be challenged accademically?  You are not giving his teacher much credit when he hasn't even been in the class yet, you might find that he/she challenges him and meets your child's need beautifully, or that the program might be too challenging for your son  (Sorry if that sounds harsh but I am a primary school teacher and I would hate if I new parents were judging me as a teacher before they even gave me a chance to show them what i can do!) If  however, for whatever reason you believe your child's needs are not met (with evidence) then bring it up with his teacher and between the two of you, you maybe able to come up with ways to challenge him more. 

I believe the main thing is that your child is happy.  Too many changes could actually hinder him academically as just when teachers begin making progress the child is taken out of that school and hence has to start all over again and learning to make new friends.  I have found that children who come into a new school later in their primary years sometimes struggle especially when making friends as strong friendships within the classroom are already formed. 

I wish you and your family the best of luck and in the end you know what is best for your children. 

Keep him where he is......

In answer to your 4 points see below.

1) We know he will be safe, and reasonably happy in the current school for 1st grade but we also know he won't be challenged academically or develop strong friendships (80% of the students speak English as a second language which makes organizing activities outside of school difficult). - Challenged academically - well I think learning another language is a big challeng for any kid and a great experience to have at a young age. Strong Freindships - how many of your grade 1 friends do you still know? Kids meet at school and 1 week later there best friends 2 weeks later they hate each other.

2) We know he will be changing schools for second grade (We're renting a house until we get a good sense of the area and plan to buy a home in summer '09. When we move into our “permanent” house he’ll attend that public school) - I think if you already know he will be changing then letting him have this little bit of stability could be a great benifit after such a big move already.

3) Our son historically handles “big changes” really well (getting a baby brother, moving across the country, starting kindergarten, etc) - wether or not he handels changes well If you can avoid an unnesasary change isn't that best.

4) We really prefer public school over private - Public or Private, having gone to both I would agree Public is better it gives children a better idea of what the world is really like with out being sugar coated in money.

I hope this helps and if not then I'm sure whatever decision you make will be the right one for you son.

On the other hand, if you sort of know the general area where you may want to live, maybe you can go ahead and find a school in that area. That way you can move your child there, and keep him there even when you have purchased a home.