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Dwellings can be upgraded only to build units or give local bonuses. In the case of fairy dwellings, the upgrades give magic resistance to friendly units in the dwelling's domain (3 hexes around) and penalize the magic resistance of enemies in the same area. The dwelling can be upgraded to build 3 tiers of fairies (the units that we have supporting us now are tier 2), unicorns (cavalry unit that can teleport a moderate distance once per battle), and nymphs (garbage-tier melee fighter, but can convert low magic resistance enemies - temporarily for humanoids, permanently for animals)