There are significantly better players playing amateurs than in the state level leagues in WA in particular because it pays much better than the wafl does. You'll also find that the top 50-100 players in both the wafl and sanfl are better than all bar a few draftees in their first couple of years. The afl currently has a very backwards way of searching for elite talent. The best comparison would be the NFL whereby you have teams that have been very good at assessing and reaching the pinnacle through assessing mature age players and others who have been successful through the drafts. How you spend your picks is up to you.
Something that AFL clubs currently are absolutely shithouse at (bar 1-2 exceptions) is assessing mature talent. List managers and recruiting departments needs to realise that every club gets draft picks every year and that as well as the next years bunch of 18 year olds the talent pool is every player on every other clubs list and every playing list in the country. Currently clubs aren't going hard enough at other teams players or at mature age players in general. This will change in time and more clubs or larger list sizes would support these ideas.
Where do we get extra teams from? Which areas could support a side / another side? Adelaide and perth could probably handle 1 more each. Tasmania maybe. Where does team 4 come from? Personally i would run with 21, every team has 1 bye a year and you play a 20 round season. Home one year, away the next etc.
The dynamics of the AFL are totally different to the NFL though.
First of all, they have a minimum entry age (21 years old, or three years out of high school) for the NFL. They also have the massive college football system, which is nothing like anything we have in Australia. It's higher stakes, has and makes way more money, and probably provides a better development platform for 18-21 year olds for its sport than our professional league does. The NFL itself has 31 of its 32 teams under private ownership, so pretty much every team is in "win now" mode, to make money and increase the team's value for the owner, and increase the value of the league (which also has a big revenue-sharing model).
If AFL clubs don't draft young players, and leave it up to the state leagues to develop them, there'd be a big drop off in talent and development and even players staying in the game or pushing for that next level.
If for the 2017 season, you could name 22 squads of 44 players (968 players), all over the age of 21 at the start of the year (so, anyone born 31/12/1995 or earlier), you'd be scraping up and naming some very, very average footballers who really aren't national league standard. Might be an interesting task for someone to undertake, if they have the time and knowledge, but I doubt it would be easy or (if implemented in reality) result in a better standard of footy across the AFL.