Everyone is worried because the inns are full and the people visiting have no homes? I'd be more worried abut food, raw materials, and sanitation. Any farms are gone, and a bump in the number of people due to the festival means food is being consumed more quickly. Any stockpiled goods used internally for production/trade will soon run out. Major water sources are probably gone since the city from a previous chapter's aerial shot has no river.
It's the capital city of a major kingdom, the food stock must be pretty big in case of siege, material would need some work but they are in a forest, they have all the wood they will ever need so the rest can be rationed from the existing stock.
Water would be the biggest issue for sure, they would need to search for water realy fast, but with the elvens help they should be able to work things out.
In this kind of situation keeping your city safe and having people live under a roof is a realy huge priority. There's an entire city, they can split work to do all these things, but if people dont have anywhere to live the city security would worsen fast because living in the street when you're country is in this state is not realy rassuring.