A full bar of "Path to Kingship" is required before you can progress to build a kingdom of your own. After you have a full bar, the city builder will allow you to create a city. Talk to the guild master to check how your path to kingship. To fill up the bar, you can kill monsters or complete quests. When it's about halfway, the Reficules will attack the Guild. The NPCs will disappear (like the Blacksmith and the Innkeeper). Once the Reficules are all defeated (it's quite easy actually), repair the Guild for everything to return to normal.
Once the bar is fully filled, you'll have to talk to the city builder. He'll be on the first floor of the inn. The Guild Master won't help you do anything with building your kingdom.