The beginning of this following wiki article lists several different ways to refer to the same thing. http://en.wikipedia.org/wiki/Tower_block

B is the only correct answer because "flats near the centre" refers to housing units (flats) near the centre( an area location) choices a,c,&d are all housing units as well, so it doesn't really fit .. it would be like saying he lives in that new building or tower of housing units .. as oppose to he lives in that new block of flats near the centre (this is most natural).

No, only B is possible. This is because 'a block of flats' is a set phrase - a kind of compound noun - and it is invariable. It is the British English equivalent of 'apartment block'.