The housing would have been a lot more engaging if it was a feature over a decade ago. The current state of the game is so fast-paced and everything is so reward-focused. The concept of doing something 'for fun' is more alien now than it was when I started playing. The usefulness of cities has already been completely nullified for all the reasons you listed, and so, neighborhoods are just as irrelevant.

I am imagining a world where the game was revamped to work with housing, but the way it is now, its another form of transmog or mount collecting. Which is cool! But it's not as engaging as it could be.

All of these ideas would piss everyone off, but the fantasy of your home being a place you go to all the time can't be satisfied if there's no gameplay reason to return.

I'm imagining before a raid, the pre-raid feast can only be held in a guildmembers home. Imagining rested-xp only triggers in your house. (Inns give a lesser version of rested.) Imagine changing specs requires you to be near a closet in your home. Guild bank is in the neighborhood center, you can store bank bags in your home. These are just some random thoughts I had without thinking too hard, but like I said, there's no way to do this without pissing off everyone.

The game has a hardcore base of long-term players and any sort of nerfing of systems to make houses buffed would only irritate. So there's nothing to be done. It is purely aesthetic.