Depending which township you are moving into likely has its own code in regards to who many residences per room. The goal is to prevent "hoarding" so you aren't housing half of the city of Levittown in one room. Check with your local township or contact your Supervisors for your township and ask them where to obtain a copy of the local ordinances. Also, ask the landlord where he is relying on that. Sometimes landlords claim it is a local ordinance, but really is there own rule that they claim is a law.
Best of luck!
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I am quite sure there is no law about how many children sleep per room. That type of legal language seems ridiculous. That being said, there may be a law governing how many non-related individuals reside in a home. This type of law is designed to prevent boarding houses in particular areas. If everyone in the home is related it would be discriminatory to have such a ban. It is likely this landlord doesn't exactly know the rules or maybe he just doesn't want the abuse from 5 children on his property. If you are not already in a lease agreement the landlord has the absolute right to limit the number of occupants of his home on a private basis so long as he is not discriminating against a protected class.....and people with lots of kids is NOT a protected class. In short, I doubt that is the law, but it may be his law and really that is all that matters when you are seeking to make arrangements to rent a private residence.