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If there is a technical possibility to implement city rebuilding, it could be done as follows: when a hero enters a castle, the player is offered to rebuild the castle to match the hero's faction. Naturally, it would be expensive, and even better, it could be based on a formula that checks the city's level. Then, we would have the opportunity to fully play as new factions, simply by hiring a hero from the Swamp, Sanctuary, Dark Elves, or another faction. They would have fairly standard units, no stronger than those of other heroes.
For example: Started the game as Elves, hired a hero from the Academy/Swamp in the tavern, and was offered to change the city for 2000 gold, 4 wood, and ore, and 2 of each resource (for the second level of the castle). Agreed - paid the money and received an Academy/Swamp castle. Disagreed - continue playing as Elves. The high cost of rebuilding will help on later levels of the game; before rebuilding, you need to hire the units that haven't been hired yet.