In the two games where I've seen this, I've had the tech for villas and estates long before my city grew to 500 population, but I've never seen any auto upgrades of the existing houses, nor have villas or estates been available in the building selections until the city got to 500.
Of course I'm no expert, and I don't know whether houses are supposed to auto upgrade to villas, or whether villas and estates are supposed to be available with the population less than 500. I do hope this gets fixed soon, though.
