Dent in the sexbox:
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Football players should play for the town they were born in then wolves would win 120% we're good stock
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This is a pretty common hypothetical, it's fun.
Athletic Bilbao basically already do this, they only use from the Basque region. They're still a top half team in Spain.
South American teams would obviously be good again. Barcelona and the Madrid teams would still be great, Ajax would be great again.
In the UK, Wolves and all the other West Midlands teams would get better relative to the rest of the league. Newcastle and Sunderland would probably be good, both usually produce a decent amount of players and don't have to share their city with another team.