I have been playing this game for the best part of a year now and my mayors house is still only level 2, I see no reason why I need to upgrade this building as it gives no great advantage over placing a new storehouse that will reduce the carrying distance for some workers and levelling this up to 3 works out far cheaper also.
I would suggest that an upgrade in the mayors house should also reduce the time taken to produce workers, therefore giving me an incentive over and above the mere fact that a mayors house looks more grandiose the higher it goes.