Is there a way to increase local storage on iPhone 7?

You can't "create" more memory and you can't add memory to an iPhone. You will need to delete things that are currently on the iPhone.

How to check the storage on your iPhone and iPad - Apple Support

Manage your photo and video storage - Apple Support

Delete apps on your iPhone, iPad, and iPod touch - Apple Support

There is probably no need to buy a new phone. It's like closet space. You don't buy a new house every time your closets get full (okay, maybe some people do and, if you're someone who can afford to do that, just go ahead and buy a new phone!). You clean out the closets and get rid of stuff you no longer need/want.

If, though, you're looking for a way to justify buying a new iPhone this fall, feel free to ignore all the advice and just tell anyone who asks that you really need a new phone! I won't tell.