If they actually did instanced housing (and I really hope they do), it would make sense to have a fake backdrop beyond the borders of your yard. And the yard is a big draw given the need for stables and gardening.
The current interior of your personal house already is an instance. Take the current player housing instance and expand the borders out to include a yard (the door would work as a door rather than a trigger to change instances) and the yard would be included as part of the house. Make the instance border your garden gate and there you go.
If they were able to take existing housing and convert it, there would be very little blowback (someone would complain. Someone always complains) and it would free up those housing spots.
The issue may be that the servers couldn't handle every level 50+ having the possibility of their own instance. That's what, I think, caused SE to change to the ward option and caused the blowback. The smarter thing for them to have done if that was the case, would have been to tell us that there was a delay while they got it right. It would have caused less drama.