I noticed that lumbermills only use one tile, so I built three of them (I demolished the third later) in this level 2 city and had no problems, Then I saved, quit, ate dinner, and loaded the game up again. When I looked at the city, I discovered that it now had -8 free tiles available! Demolishing a building caused the number to decrease by one, and I was not allowed to build anything until I got back into positive numbers.