That argument presupposes that you are taking a risk. However, that is the point under discussion: is it a risk? You could also consider it in a positive way: people that are put off by something as irrelevant as where they stay, that worry about comfort, are less likely to be a suitable candidate. There'll be more uncomfortable circumstances to deal with.

Of course, this is from my point of view: I presuppose that 'where you stay' is irrelevant, because I consider it irrelevant. If I have to sleep on a couch in the founder's living room, so be it. Perhaps you are right that one should best err on the safe side of caution by providing a hotel. Nobody's ever been fired for providing a hotel room :P