I have no problem with the landlord restricting renters from re-renting on AirBnB or the like, but how is that different from the host (first-instance renter) doing water damage himself?
It's possible in both cases. The difference is two-fold: The landlord can control the probability of damage through the application process, assuming some people are predictably more risky, and the renter can be required to purchase insurance to ensure that damages are paid. I doubt (but haven't confirmed) that a standard renter's policy covers damages arising from short-term rentals.
