An instanced system solves the problem of scarcity, and additionally has the possibility of choosing whatever plot you like.
I think you forgot what game you are playing, you're playing FFXIV, I hope you understand that if instanced housing ever happens (which I doubt) it wont be a plot of your choice, have you seen island ? Everything is premade, and there's barely any choice, if instanced housing happens, it'll be a little bit like garrisons in WoW, with premade placement in the world, the house will be in a fixed spot, not "the plot you like", I can promise you that 100%

They can do both, let people have their houses in the neighborhoods, and let people have S/M/L apartments.
Absolutely, I think large apartments are a good idea actually.

As much as it would suck, yes the limit needs to happen, its part of way we dont have enough houses to begin with. With how this game works, there is no need for one person to own multiple houses, even on different servers, hell there is not even a reason for multiple characters unless you are playing on another data center.
Sure, but it cant apply to past purchases. If it applies to past purchases, they are opening up to a whole lot of drama. And no, getting some gil wont do anything, there are venue owners, or people with housing as a hobby, or people who do submarines, if you remove everything from these people but one, you are in for a ride because lets not forget those people also have multiple accounts, the loss wont be small.

Also, there is enough housing on the entirety of EU, and for NA, Dynamis is open with a billion plots having 0 bids, if people dont want to move, its on them, the housing system is fine. Instanced housing in the form of large apartments though is a good idea, hell I'd probably get one.