Do both, keep the current wards but also have an instancing system where you can get whatever size since one of the reasons why people care that it gets blown up is because they probably won't be able to get it back. If you can just come back then rebuy the plot and get your stuff from the reclaim NPC, it's a lot less annoying.

One issue I see with an instanced system is that it might be quite a gil sink if people could buy a large amount of houses indefinitely which might affect the economy with all the gil being flushed down the toilet.