I agree they should be extended. If you only build housing in just this area, you'll be able to house I'd say maximum 150 - 200 people which will not be enough for huge guilds to establish themselves. I know they can just spread out but still gonna be needed.
Personally I think a city's claim size should depend on its monument level (potentially infinite size with a maxed out one) and active population - if there are a lot more actives than what the current claim size can support (like if there is an immigration wave or something) then it starts expanding more or less fast. If there aren't enough active players for the city claim and thus too much space, then it starts reducing, and eventually the city will have to give up its fortifications and slowly become a "rotting", ghost town. That system would also prevent madmen terraformers from building huge cities out of sight just by themselves.
And let me emphasize on that point : builders are going to need excitement too. And unfortunately, building kinda the same things over and over again is pretty lame, but having to always expand a city's fortifications will be fun ! Why not allow "Carthages" or "Romes" to build over time ?
(All this just gave me the idea to write yet another file about land claim and city building)
