This, yes. After the first time I upgraded a house, and had all residents die, and research advised me that they'd starved because they can't eat without a home to eat in, I said to myself, "Aha! This explains the need for a hostel!" So, I built that big boy, and... immediate permanent tenants, which was bad, and 18 open slots in houses, which was worse.
As xeerox109 stated, this should be simple. IF homeless, move into hostel. No breeding. WHEN any other housing becomes available, THEN move into it.
Seriously, without this logic, the hostel is utterly pointless. If adding this AI is actually that difficult, then please, at least rename the hostel to "apartments", so that people stop screwing up their game based on faulty expectations.