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TIL that EA makes $420 millon/year off of the Sims 4
(www.netbet.co.uk)
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The Sims 4 is the only game genre I know of that doesn't have any alternative game. There's especially no open source alternative game. There isn't an ethical indie studio equivalent but also not even a different scummy AAA studio has a simlike game.
I feel like The Sims would work especially well with the open-source game dev model as there is no story line, just assets, actions and play modes
Starting some kind of sprite based isometric graphics sim game seems like the kind of thing that would make a fun hobby project but personally, I prefer to spend my time doing hobby operating system development. I won't be the one to make such a game but I'd make mods for it.
Maybe look into the Flare engine. One might be able to use that for the isometric graphics and clothing layers. If that isn't quite versatile enough, there's always Irrlicht or Ogre Engine.