Raising the sea level using the World Customization settings causes villages in the world to generate with rectangular columns of air over the village buildings.

What I expected to happen was...
Raising the "Sea Level" setting on the World Customization's Basic Settings screen would cause villages to generate in one of the following ways:

1. Completely underwater (with the ocean surface looking like a normal ocean surface)
2. At the ocean surface (with foundations reaching down to the bottom of the ocean floor, like you sometimes see in villages in Amplified terrain)
3. Not spawn at all (I wasn't sure if village generation required dry land)

What actually happened was...
None of the above. Instead, villages spawn in the exact same location, but as the sea level rose, rectangular columns of air that match the village building footprints reach all the way up to the ocean surface. See the attached GIF image below.

How to reproduce:

1. Create a world and locate a village.
2. Write down your coordinates and exit the world.
3. Re-create the world (to get the same seed), but before creating, change the World Type to Customized and raise the Sea Level setting above the y-value of the village.
4. Create the new world and /tp to the coordinates you wrote down from Step 2.
5. The village will be in the same location, but rectangular columns of air will be above all of the buildings.

Here were the settings I used:

Here is a GIF image animating this effect: