I’m considering running fortified towns and settlements as open air dungeons where single-room houses function as traditional dungeon rooms or as treasure lairs.

Prices for magic items

 Shopkeepers use mundane prices, i.e. a magic ring will only be sold for the price of regular ring, a magic sword for the price of a regular sword.

"Just Start at level 3"

 Nah, treat levels 1 and 2 with kid gloves, then at level 3 let it be "The Real Dark Souls Starts Here"