How would it ruin the economy, there would immediately be a BOOM of folks scurrying around trying to buy tools or deeds, and then more as folks tried to decorate and fill their houses up?
The economy would go down even more if areas like this were open, we need to keep the market stable or increase and this seems like it would drop. Also, on a side note, we already had this form of an idea with Booty Island. 
I think in addition to the above answers, what might help you understand the most is that the economy is not boomed by a one time occurance. If we opened a grasslands for housing, tons of houses would be immediately placed, probably quite a few castles and 30x30s. Deco would be sold and houses would be decorated and gold would be taken out of the economy for those custom houses that require a lot of dough to configure. We would even sell a lot of dono items.
before my time sadlyI disagree with this as well, especially since there are a ton of vacant plots currently. Not only that, there are a lot of IDOCs that are still happening, which creates the aspect of how the server isn't so full that it is impossible to obtain a house. I get the idea of wanting a bigger house, but maybe that is half the fun, trying to track down owners in a desirable area and purchase their homes, to build the dream home.
Well if you want an engineer/graphics major to come do any design work on it, let me know, It was one of my favorite things to do when I was on Lake Superior. I have just always liked the architecture aspect of the game.