This week, in a question-and-answer session on the official forums, Butterfield explains just how the new housing system will work. For starters, everyone will now begin the game as a homeowner. Existing players will be transitioned from their current, static homes into new base models, which can be upgraded (horizontally, vertically, and thematically) as players invest Imagination and undertake crafting projects. Players will even decide which types of gardens and animal pens will surround their abodes.
There's a whole lot more to the Q&A, including bits about economy overhauls, player-generated content, and the end of Lord of the Rings Online-style neighborhoods, so sandbox aficionados should review it or the summary in person.
[Thanks to Saucelah for the tip!]