Don't make it like other games' instanced housing where each player has his own little private world that no one else can see unless they're in a party with the owner. They need to keep the neighborhood feel or existing housing but enhance it by eliminating the wards.

Each plot would have multiple owners, and you can select which owner's stuff to display via the placard. Your house will always appear on your lot by default, but you could still visit the other owners' properties with the placard.

The current system of one owner per plot results in the deserted neighborhoods we have now. With instanced plots, you'd have hundreds / thousands of residents in the same area.
When you're on your plot, others can still see it if selected, but they can't see you from the street. Once you leave, you're on the street with everyone else that's "outside"
Another advantage is that the house would no longer be a separate instance, so you could freely move in and out, and even have rooms open to the outside.