On the other hand I think that this kind of hosts harmsharm the Airbnb community and the idea that can you book mind-free holidays cheaper than a hotel, so I should not allow this behavior to go unreported.
Exactly, and that is why the host wants you to cancel. If a host accepts bookings and cancels many of them later, he will eventually get into problems with AirBNB and may not be allowed to use their platform anymore.
You are fully entitled not to cancel the booking from your side. Depending on local legislation, if the host cancels your booking, it may even be concidered a breach of contract, which makes the host liable for any additional costs you may have, if you for example now must pay more for an alternative accomodation as was the case at the time you booked with the original host.
