Why shouldn't Apartments get upgrades? Because Apartments aren't meant to be comparable to ward housing in general. Apartments are affordable and 1/10th of the cost of even the cheapest Small House Plot. It's that reason that it NEEDS to suck. Otherwise, if Apartments truly were upgradable, then whats the point in getting a small or medium? While true, that would certainly alleviate SOME plot issues, I will remind you that there are plenty of people that have gone on record to say Apartments are worthless and shouldn't exist, purely because the apartments aren't houses.
People still think or assume that having a house means you're superior to others, when that clearly isn't the case. People don't walk around the housing districts (which is disheartening for a Roleplayer.) so nobody but you, your friends and your neighbors will see your house and even fewer of them will care about what it looks like or where it is.