Housing in Classic could be designed around the existing world rather than separated into artificial neighbourhoods. Players could own apartments within major cities such as Stormwind, Darnassus, Ironforge, Dalaran, Orgrimmar, Undercity, and Thunder Bluff. Blizzard could also add a limited number of physical houses or small homesteads in places like Elwynn Forest, Durotar, or more remote parts of the world.
The important difference would be that these homes would feel geographically connected to Azeroth. Instead of entering a completely separate housing neighbourhood that exists outside the normal game world, players would approach an actual building, doorway, or property in the city or countryside and enter their own instanced version of that space.
This would preserve the sense that the world is a real place rather than a collection of disconnected systems. A Stormwind apartment would genuinely feel like living in Stormwind, while a cottage in Elwynn Forest would feel like part of Elwynn Forest. It would also give older cities and zones additional long-term relevance by encouraging players to spend time there for reasons beyond banks, auction houses, and questing.
Instancing would still solve the obvious technical problem of limited physical space, because many players could own the same apartment building or house location without requiring thousands of individual plots. The exterior could remain part of the shared world, while the interior would be personal or guild-instanced.
That approach would fit Classic especially well because housing would strengthen immersion and attachment to the existing world instead of creating another isolated hub that pulls players away from it.
This type of design would be especially conducive for the RP ruleset.