I have read many threads from people who have tons of wood and sink it all into haveing good fear/order/anarchy/defence effects on their island. I aggree that environmental effects are important, but I have found a more cost effective way to make your pirates happier...and to a lesser extent your captives more resigned.
I personally make it a point to house every single pirate in my island. Even the overseers and guards. There are several reasons I have for this.
1. When pirates build and upgrade their houseing, that means more income for you
2. Pirates fufill two needs at once when in their house (sleep and hoarding) and will always have a 0 hoarding unless they have a house.
3. Landlubbers, without a boat to sleep on, will have very little sleep...unless they have a house.
4. A quick glance at your pirate district will give you an overview of your pirates' levels without haveing to dig through the almanac. This can let you know when it's time to start investing in higher level entertainment.
5. Higher level houseing holds a certain air of fear for nearby captives.
6. Ultimately they are cheaper than scenery, being only 6 wood a pop vs 10 for a quality piece of scenery.
Two downsides I see to houseing are
1. they eat up SO much space, and make it impossible to house everyone on tiny islands
2. Because they eat up so much space, some houses are bound to be out in the boonies, deep in your island. If you sound a boarding call and one of your crewmembers is snoozeing at home, it can take FOREVER for them to walk to their ship.
One thing I have noticed is that if a pirate becomes disgruntled and are on a ship, they will teleport to their home to sleep/hoard which almost always cheers them up in a flash. Pirates also teleport to their houseing if you build the plots while they are on cruise and they come home to build a house.
To cut down on walk times, you should make this teleport feature constant for all pirates, allowing them to teleport to and from their house, but have to walk everywhere else. That way the insane walking distances are cut down.
And at the end of the day, nobody can argue that it isn't cool to see a row of pirate manors, rich and towering while some poor captive hauls goods past it before going off to sleep on the ground with the ants.