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Residence increases your population limit with each level. Population are required for resource plots to work and to train armies.

Upgrading Residence requires a certain level of Headquarters and certain amount of resources.

RequiredHeadquartersLevel = CurrentResidenceLevel

Note: Population is affected by morale, which in turn is affected by tax and Casino.
Residences

2 residences with a level 6 casino and a level 4 logistics center next to them.