The sprites don't fit the aesthetic of the game but I do like the idea of designating areas for specific purposes. I don't think a special item or housing is even a necessity for such a feature as you could simply allow guilds (or whatever type of group you create to allow for town building) a limited number of designations for each type of zone they want to create. For example the guild leader stands at X, Y, Z coordinates and designates the surrounding area to be the town hall, smithy, fishery, dock, etc. and then those areas would allow for the related items and structures to be built upon the land.
Also the idea of instanced zones seems like a step backwards, an entirely open world with little to no instances is something many games strive for but fail to do so since you've already pretty much done it to go back on that just doesn't seem like the right direction. Quest maps appearing in an instanced zone with no other way to get them except for a warp or something is not really a big deal though as all players end up in the same instance in that scenario anyways.
In any case, what this game has been lacking for a long time is reasons for players to actually get together and work with each other towards a common goal and to that end I really like the idea of the players building towns themselves. In my opinion though this should be something that occurs in the mid to late game so that in the early game you first have players working on forming their own personal land plots and guilds and those who choose to build near each other can then work on forming a township. One of the main reasons I detest servers allowing for multiple characters is it gives them even less reason to work with other players since they have the means to do everything themselves so you could even go as far as requiring specialization in certain areas in order to better build and utilize the specialty zones when they are designated.
An example of how this might work between multiple guilds forming a single township could be something like, if only one guild forms a township then they are only allowed to designate X amount of zones. The very first zone being the town hall which allows for further expansion of the town. If two guilds form an alliance and build a town together then the town hall can be upgraded and essentially this allows for double the amount of zones to be designated, in turn a bigger town can be built and perhaps even new designations that a single guild formed town would not have access to (or at the very least would not have access to without a greater amount of work in comparison). And so on.