Excellent points. I think under this feature they still can expand, but they will need to acquire the manpower to do so, which will incentivise players to recruit their friends, and to try to woo nobles away from other realms by offering them a lordship or a lower tax rate.
It's a nice thought. We hoped that when we actually had a system like this in place.
Guess what? It didn't actually happen in real life.
One perverse feature of the current game is that it's actually better for lords if they have no knights, because knights cut into their tax revenue. This shouldn't be the case. It should be in the lord's interest to attract knights to his region.
I completely agree with this. It's been on my list for some time, but I need to have time to work out the details of how it should work.
In the past couple of years it hasn't been a problem in practice, because realms have desperately needed to attract more nobles in general, but yes, there's definitely a perverse incentive there that needs to be eliminated (or, ideally, reversed).