If you are a citizen you can purchase the housing plots inside of the city walls which are specifically priced by the governor.
Anyone... Including your worst enemy who plans on using the house as a staging location to attack the city from... Can purchase a house plot outside of the city walls and leech off of the tech that the city has, and have pvp immunity on their plot.
If a city is successfully sieged the houses inside of the city walls are lost -destroyed we think- while the houses outside are like 'oh new management, we still getting the same perks tho right? cool, cool.
The new rulers of the town can change the researched tech and taxes on using crafting stations within the city... but other than that there is no effect on those living outside...
Well... the new owners -could- just sack all of the chests and not pay upkeep and let the town degrade one rank a week... but what a waste.
The 'founders palace' or other building blueprints are restricted by plot size. The plots outside of town are 4x4... i think... with a specific technology the rulers could make 5x5 or 6x6??? plots within the town, which is what you -might- need for the palace... but i'd doubt it.
The more you invest into a town, the more you stand to potentially gain, or loose.