Hard to identify the exact issue from the contents of the post, but for houses to upgrade beyond the 1st tier huts, you need to not only have watchtowers or enclosed walls to provide either light (tier 2) or heavy fortification (tier 3), but also all the houses need to be in a patrol zone, and actively visited by patrollers assigned to at least one watchpost.

In order to upgrade to higher quality levels, Serfs working in the area need to be promoted to Commoners and then move in to applicable houses. Just having some decoration providing beautification isn't sufficient. And the Commoners will also need access to goods from a market and entertainment from a tavern as well otherwise they will eventually just leave, and as soon as they do the houses will devolve back to their basic level.

To actually even build the initial tier 1 houses, there have to be available jobs nearby. If those jobs are less than 200m away from existing vacant housing spots, people will more than likely move in to those rather than build new, even if it is more convenient.

Edit: it might be 150m distance. I forget right now.

I added some more industry at the un improved housing end. It hasn"t improved end.

How do i add pictures to these discussions?

You need to take a screenshot in-game with F12, then share it to make it public. Then you can add it to a post by copying and pasting the link of the shared image.

Manually upgrading buildings really should be a feature. If it is, I couldn't find it.

Only change the house quality but keep two people, check desirable neighbourhood beautification boxes, (little green circles) if you put a decoration down and the building has a brown outline still, you cannot make it desirable.
Demand is important, they wont build a massive 6 person house 150m away from work.

You said: 'the wall, lots of towers' that is the density upgrade. doesnt matter desirable neighbourhood OR beautification to get 6 (unless they are commoners) They need patrol.

Lots of them.