The funny thing is, Island Sanctuary actually proved why instanced housing would be a terrible idea for this game on a technical level without major overhauls in the backend.
When IS was launched, everyone having an instance of it open as people made a mad rush at it completely shut down the instance servers for housing on practically every popular server for days during peak hours since there were linked, preventing the vast majority on those servers from going into their homes. (IS was likely hooked up to the housing server cluster to prevent this issue from taking out the combat duty instance server cluster instead, which would be 10000x worse for Square). The exact same thing happened when EW was released - everyone afking in their apartments with their anti-afk tools to prevent kicks caused housing to become nigh impossible to enter, to the point that between that & difficulties logging into the game, they had to emergency freeze the auto-demo to prevent people's houses from being demo'd when they literally couldn't enter them to cancel the auto-demo.
The game literally cannot support instanced housing in its current setup. if everyone was given their own housing instance, the above issues would become an almost daily occurrence. The wards work in 99% of situations because they're by definition, more limited, and thus on the average, way less housing instances are open at any given time contrasted to if everyone had one. If they released instance housing tomorrow, it'd be in the top 3 biggest disasters in the game's history, and the devs know it. Until they can fix the bigger backend issues such a system will present, instanced housing will never be a valid option.
And speaking as someone with game dev experiences, updating/changing backend stuff that's had years worth of systems built onto it is not a small feat, and an extremely tricky undertaking. With how tight their patch cycle dev times are of only 4 months, it's definitely not something they're going to do when they can't afford any major setbacks at all if something goes bad. If they ever do instanced housing, it'll be made during the X.5 -> expansion development frame since they have way more dev time to afford things going wrong.
As to why they can give everyone their own Island Sanctuary? Simple, because with the way its setup, you're there for maybe 10mins a day at best, and if you try to afk there, it kicks you out. Outside of launch days where there's new content for it, there isn't any risk of IS instances clogging up the cluster drains, since players either close them manually by leaving, or the game purges them regularly with afk kicks. A vastly different story for housing where people love to afk, craft in their homes, etc, keeping open instances not doing anything/barely doing anything clogging the drains way more a potential issue. I have zero doubts if they ever added instanced housing to the current game state, they'd have to put an insanely hard afk timer on it, like 10mins, and implement systems that can bypass anti-afk tools and kick you out anyway. Or even worse, make a queueing system for it then only give you a small amount of time to hang out inside your house before it auto-kicks you out, either of which would no doubt illicit 'BuT wHy Is It LiKe ThIs' complaints.
Then there's also other issues to talk about, like the fact that with the way they have things coded, you literally cannot teleport to a location unless its a persistently loaded location (the exact reason you cannot warp to IS, because a player's instance is only loaded when they enter it) which would mean instanced housing would require you to do similar to IS and require you to go talk to some NPC/object to access it which would no doubt draw ire from people complaining about things they have no technical knowledge on.
As a former game programmer, I don't envy Yoshi-P's team. A bad decision made when they expected the game would only get maybe one expansion before shutting down is biting them immensely hard a near decade later, and trying to give a technical explanation on why it would take a long time / why they want to stick to the ward system would just go in one ear and out the other for 99% of their players who have zero server environment experience, or make 'but this MMO did it' false equivalence fallacies without understanding the technical aspects of FF14's server architecture & code foundation.