I don't know if I'm doing something wrong but I'm using Theme Builder and have all the village assets assigned to a named theme which I assign to the city first then to a zone when that's unlocked. Left organically the residential area gets filled with both variants of the level 1 house but they never upgrade to level 2 even though the blue bar fills up. When it's filled it simply resets to empty and stays at level 1. Using Find It I can manually place lvl 2 houses which do upgrade without any issues.