A boarding house is meant for temporary housing. After a disaster occurs, or when nomads arrive in the town, you may need a place for the displaced people to live until you can build more houses or repair damaged ones.
Citizens will live in a boarding house if it's the only place they can find shelter. Otherwise they prefer to have their own home, as it makes them happier. Young people ready to move out of their parents house won't move into a boarding house. Families will have children when they are living in a boarding house, unless they are living with their own family.