In TW:Warhammer 1 Wood Elves can only build up to tier 1 when making a new colony-this balanced that they could build colonies on all types of land (including chaos wastes).

But in TW:Warhammer 2 all factions can build colonies on all types of land (including chaos wastes). If a faction doesn't like a type of land it gets less money from it and pays more to build there but it can build up to the normal amount of buildings.

If other factions can build more buildings why not have Wood Elves be able to build at least tier 2 buildings-maybe 3?

It makes sense, plus some Wood Elves have a settlement in a non-Athel Loren forest in the background story already. So it showed they can build a community someplace else already..