The original placement of the spawn city was determined so it fit nicely within the space covered by a datafile. This meant when the world was regenerated, we could easily copy the file into the world and we got the city, regardless of how the rest of the world was generated. There was a bit of miscalculation as to the size and placement of inner city plots so they are different sizes, but like always - first in, best served.
At that stage, we were thinking of regenerating the world regularly, so we encouraged people setting up base in the city. It also helped encourage community play. However, things have changed now that this is an official TOG server.
Now, we are not planning to regenerate the world for quite some time (hopefully). Likewise, the lag caused by so many machines etc in the city has not been helpful, so while we encourage people to have a plot they call their own, we ask that they don't overload it with complex machines or entities.
So the answer is, yes you are welcome to build anywhere outside the city, as long as you don't get in the road of other players. However, if we ever need to (unfortunately) regenerate the world, we will probably only save the city.