After you've completed the leaver sequence and have had the cut scene with the water leaving the lair, you still have water in the houses
and no one is there! So you go and speak with the leader and still nothing, what's going on?
This is releated to the quest that should send you to the Lair. If you've gotten to this point without getting this quest then you'll be suck at this point. What you need to go is backtrack to Alvar and go to the Merchant Guild House there and get the quest to form an Alliance (there are a few other quests that you will need to do to get this quest). Once you've gotten the alliance quest return to the leader in Balthazar's Lair and now the houses will have the people in them. It would have been nice to indicate this in some way in the game... oh well.