NPCs in Morrowind are often dressed in accordance with their faction and there is even dialogue that highlights this by explicitly linking certain colours to the three houses on Vvardenfell. The handbook page for NPC claims briefly touches upon this, but does not go into much detail.

After seeing some rather iffy outfits while exploring map 2, I decided to make a list of faction specific clothes and to see how consistently Morrowind.esm applies its own rules. I counted the number of NPC references with the given items in their inventories and then counted the number of NPCs who were either explicitly members of the item's faction or otherwise associated with the faction. This means that Camonna Tong members and a ship full of smugglers near Hla Oad were counted as members of House Hlaalu, that rogue Telvanni NPCs without the faction were counted as Telvanni members alongside everyone living in places like Vos and Sadrith Mora, and that lots of NPCs not belonging to the Ashlanders faction were nonetheless counted as Ashlanders.

I excluded the expansions from my count because they tend to be inconsistent in every other analysis. Looking at the data, the expansions are actually surprisingly okay, though this might just be because both added their own outfits. Interestingly the assassins involved in the Raven Rock questline wear Morag Tong shirts.

Columns

A: Item faction; B: Item ID; C: Number of NPC references; D: Number of NPC references that sort of match the faction; E: a percentage based on the preceding columns; F: Number of NPC references explicitly in a different faction; G: percentage of references in the wrong faction; H: F/D

Data

Conclusions

As you can see the single letter suffixed common shirts are most likely to be used by unaffiliated NPCs. The ratio still skews in favour of the house though. The common robes are likewise more generically used. expensive_pants_01_e is the worst offender because the Hlaalu guards wear it. These pants should probably not be used on the mainland by anyone other than Hlaalu guards. common_robe_03_a leans towards being used by healers (not necessarily the class) who need not always be Temple members.