The largest mistake was mixing FC and Personal housing.

If they were to double current capacity and keep FC and personal split combined with auto demolition, there would be no issue with European servers for space.

But the main issue thereafter is people wanting medium and large houses so the next step would be to make dynamic housing.

-Dynamic housing would require a complete redesign of the wards, and make plots scale in size with enough space to scale a house from small to large. The owner can then upgrade their house over time. Bear in mind that not everyone will want to go large, some just love medium houses.
-Make it so that there are as few undesirable plots as possible. That means each house must have a decent view, and be able to see over other if they are on a slope like in Mist or Shirogane. Currently, A LOT of houses have undesirable views.
-More market boards and summoning bells around. Ishgard, goblet and lavender beds have some of the worst locations and distance to travel to get to MBs and Summoning bells.