The problem isn’t necessarily “stuff not sent over vpn isn’t encrypted”. Everyone uses TLS.

Never said it was. It's a noteworthy detail, since some (rare) HTTP unencrypted traffic as well as LAN traffic in general is a bit more concerning than your standard SSL traffic contentwise, apart from the IP.

For this to be practical you first need a botnet of compromised home routers

This is more of a Café/Hotel Wi-Fi thing IMO. While it may take some kind of effort to get control over some shitty IoT device in your typical home environment, pretty much every script kiddie can at least force spoof the DHCP server in an open network.