Just to get this out first, I'm really a fan of city balance for the early-mid part of the game.  From level 1-3 in terms of how fast cities grow it's fine, but under the current system I see no purpose whatsoever in pushing for a lvl 4 or 5 city.  I know the bonuses are good but it doesn't add anything necessary until the end game at which point it either doesn't matter or it's crucial (which means it also doesn't matter- see below).

As an example getting to lvl 4 can seriously enhance income even without choosing gildar for the bonus.  The problem is that if you are doing well in the game by the time you are getting to city lvl 4 you should already have an income bare minimum 20/turn (due to multiple lower level cities) unless you are at war or are over-specialized.  And in any game where the boost from getting to lvl 4 is critical to your economy it is likely that you are already losing, and an economy boost won't fix that problem.

Additionally having a lvl 4 or 5 city is only useful build wise if you are going for a peaceful victory.  For conquest it is too easy to simply get several lvl 3 cities then steamroll a weaker opponent.  Once that opponent is dead you've absorbed their production, which negates any conditions that would have otherwise required you to go for a higher lvl city.

Finally most of the buildings you earn from a lvl 4 (but especially a lvl 5) just don't serve a purpose.  Especially with as powerful as sovereigns and champions can become it is far more cost effective to upgrade champion and sovereign equipment rather than focus on groups of soldiers.  The only time groups of soldiers larger than the second level (squad or party? I forget) are necessary is an end game scenario where the enemy matches your tech level.

Now granted this would be fixed if a peaceful option was more viable however the AI is a warmonger if it EVER gets stronger than you militarily so it is rather prohibitive of a non-combat victory.  If AI in this regard was more competent/sane I would no longer consider this an issue.

I guess my main gripe is for the cost it isn't worth it right now.  You either burn through most of your food mid game getting the required housing, or spam civilization tech, which is also ineffective as it still takes a long time to get to housing tech in the first place.  It needs to be cheaper either in number of required citizens or easier to get housing tech (such as a halfway point between huts and houses).