@Deborah0 I have Instant Booking so that doesn't allow me to choose my guests' origin, but even if I had a Request, I would accept guests from the same town. However, their reasons are not obvious in that case, I would ask them the purpose of the booking. I have already hosted a lady who lived in the same city and her purpose was to spend some days with her partner who came from abroad, because she was normally living in her mother's house. Another reason could be some people who live in a distant suburb or the town and they want to go out for some drinks downtown, so they prefer staying for one night at an Airbnb flat than taking a taxi to go back.
If you have a rule that doesn't allow paries and big gatherings, make sure that people from your city won't book your place to hold a party, as it is a possible scenario. But of course, in any case, if you have that as a rule, the guest must accept it or if they don't, you can contact Airbnb and even ask them to leave.
I wish you the best for your listings!