I'm making a house to put in Whiterun and Severio Pelagia's house is the perfect spot for it. Getting rid of his house shouldn't conflict with any of the story line correct?

http://uesp.net/wiki/Skyrim:Severio_Pelagia looks like he's free from any quests. I'm not sure if there would be anything else stopping you from deleting it or not. And of course, if you're deleting his house, you should probably delete him and his wife as well, or you'll probably run into some issues with their pathfinding.

Also, it's unwise to delete any vanilla references for compatibility reasons. Instead, it's much safer to mark anything you want disabled as "initially disabled" and then set the z coordinate to something like -99999.

Or you could set up a quest where you buy the property from him, then hire a workman to tear down the old house and build a new one...then have him and his wife move into the inn or something to live.