This is a slightly altered copy of a post I made on the Lodestone blog regarding new lighting in houses after the graphics update. Since I saw a couple of people posting here regarding that issue I decided to share my findings in case someone finds it useful.
Overall, it seems that the new lighting model creates very harsh and dark shadows, together with lots of blown-out highlights. This results in an image that looks like it has way too much contrast, especially when comparing it to pre-update images. Depending on your house design this can drastically alter the feeling of your house or apartment, to the point where the main theme or idea of your design now might be completely unrecognizable.
In the old screenshots you can see that while the graphics may not have a very realistic look to it, the image itself is well-balanced, there are no overexposed or underexposed areas, and the image itself is easy to read and understand. Screenshots after the update display much harsher shadows, it almost looks like the interior is being lit by an artificial sun, directly inside of the house. Usually in the real world, the interior light appears much more diffused because of light fixtures having glass with diffusion properties, and also light bouncing off multiple planes and surfaces of the interior, creating less harsh shadows.
After messing around with graphics settings It seems that the main culprits of this look are the new Screen Space Ambient Occlusion (further AO) settings. The better the quality of AO, the harsher shadows you get in the final image. For comparison, I provided the difference between the two highest AO settings, even between these two the difference is massive. Using older AO settings results in visuals that are much more similar to how the game looked before the update.
Also, the highest quality AO seems to be very inaccurate, and it provides some weird visuals with objects in front of other surfaces. For example here, you can see that AO crops out around my PC, NPC and the column on the left, leaving a weird-looking aura effect:
As well as in this example of AO being rendered around the wall partition bars:
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