This is still a problem in 18.04. Like the OP, I have localhosts on my
LAN, but have no local domain configured. I had to disable systemd-
resolved on each of my LXC containers. What's worse, resolvconf creates
an empty /etc/resolv.conf file. So I had to create resolv.conf by hand
and point to DNS. Again, on each of my containers.

This is a major regression. If the systemd-resolved is to be kept, at
least have some decency to explicitly note in 18.04 LTS release notes
that local hostname resolution requires local domain to be configured
for name resolution to work.

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https://bugs.launchpad.net/bugs/1699660

Title:
  systemd-resolve breaks resolution of local network hostnames

Status in systemd package in Ubuntu:
  Confirmed

Bug description:
  After upgrading to Ubuntu 17.04 (zesty), resolution of my local
  network's host names is completely broken.  Apparently the upgrade
  replaced my existing resolver with systemd-resolve, which deliberately
  refuses to pass "single-label" domain names to my domain name server.
  That is the server where all my network's host names are kept, so I
  can no longer resolve any of them.

  Apparently, this is yet another example of Poettering's upstream decisions 
causing denial of service to people who have been saddled with his malware.
  https://github.com/systemd/systemd/issues/2514#issuecomment-179203186

  Would someone sensible please put a stop to this forced breakage
  during upgrade, and advise on how to fix it now that the damage has
  been done?

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