Some Terraria Architecture

One of the great things I love about Terraria is its creative capacity. Most games are based on instant gratification. The monkey does a trick, he gets a banana. Not that there is anything wrong with that, instant gratification can be very satisfying, and its a relieving break from the real world where all I seem to do is prepare for the future. However, Terraria offers a deeper level of satisfaction. It has the potential to truly be an creative outlet. Now that I have reached the point in the game where I am no longer trying to simply satisfy my characters basic needs (survival and game progression primarily), I have been exploring the artistic aspect of Terraria a lot more. For a 2D game, Terraria architecture can have a lot of depth. Just like all painters have the same three primary colors to work with, Terraria has limited tools for creating these works of art. Yet by combining them in new and interesting ways, one can create something a unique and eye catching piece. Unfortunately I am still experimenting with some of the more creative architecture, but I have made some progress. One of the big disappointments for me are the limitations set on buildings for NPCs. NPC housing must be fully enclosed, including player constructed background, with a minimum size, at least one table of other flat surface, and at least one chair or other comfort item. This is pretty creatively stifling, as it really limits the depth and lighting effects while forcing you to use per-rendered furniture pieces that will be the same in every creation you make for your NPCs. My strategy up until now has been to let my NPCs live in boxes off in the corner where you can't see them and play with the more fulfilling architectural creations somewhere else. However, recently I have been trying to come up with ways to make a much more aesthetically appealing NPC housing architecture. My idea: the NPC village. By making each NPC house different, and allowing the buildings to interact with each other and with the natural landscape, I thought I might be able to compensate for the lack of other architecturally artistic aspects. Enough rambling. Here is a picture of the houses I have so far.

I am having two major problems, which are related. The first one is that the village template takes up a lot of space. I have three houses on two "screens" of space where there are a total of, I think, 10 NPCs that you can get in the game. My solution is to utilize vertical space, ie. above and below ground. The problem there is that I want the village to mesh with the natural landscape, like a real village would. I want the houses to fit with the constraints of the land. It is hard to integrate this desire with the utilization of vertical space. As such, any advice on how I might do that is appreciated.