Instancing houses are certainly much easier to do, but personnaly i loved the housing system in Asheron's Call.
There were settlements all over the world, you could buy normal houses, abordable for everyone, and villas, much bigger and who had doubble of storage capacity. Then there were allegiance mansions, expensive and you had to be a guild leader to buy one, and everone in the guild could portal there at anytime to meet guilde mates.
This was great, and we had meetings like in real life, with many peoples coming and sitting arround, and one talked.. good memories !
One of the problem you said for non-instanced houses was that when people stopped to play the areas would feel emptier with the time, but that's not a problem, just group with your guild people you know will keep playing with you, or just leave the house and buy anew one in another more crowthed area.
Or just create NPCs to replace your neighbors who aren't online. They will sell what the real owners wants to sell, they would actually replace the vendors. Hmm, maybe not replace, because some would probably never see a buyer, but they could be like secondary vendors.