Reputation: it can affect the prices or whether or not the people will want to trade with you - or even have you around town! If you have a bad rep. exceppt outrageous prices and hostility. If you have a good one, expect to be able to presuade people much better
Now privileges: it's not up to YOU to wheter or not build houses to house your workers or factories to produce your own goods in a town or on it's outsirks. Of course it has advantages: you won't have to worry about protection. However, trader's guild will be the ones responsible for this, or it may be the local governor: if you have a good reputation and enough money, you can get the privilege. If you have either a bad reputation or not enough money, then no privilege for you.
Now you may be wondering: WTF DOES REPUTATION HAS TO DO WITH PRIVILEGES!? Well, the lord may think that you are not skilled enough to do good to the town, or he may think that you want to prejudice the town due to your previous action. However, it's all about the reputation, not actions remember that.
That's it, I hope that you accept this request and give your opinion, any suggestions are welcome.