Not getting local DNS to work properly

I have tried to set up a new Edgerouter Lite, but I'm not getting Local DNS to work properly.

I can see the name b3 to lookup in /etc/hosts, but when i do a nslookup, it says "*** UnKnown can't find b3: Non-existent domain"

My config looks like this:

        shared-network-name LAN {
            authoritative disable
            subnet 192.168.111.0/24 {
                default-router 192.168.111.1
                dns-server 192.168.111.1
                domain-name ikjarl.local
                lease 86400
                start 192.168.111.50 {
                    stop 192.168.111.254
                }
                static-mapping 1 {
                    ip-address 192.168.111.49
                    mac-address 44:d9:e7:9f:d2:ee
                }
            }
        }

    dns {
        forwarding {
            cache-size 150
            listen-on eth1
            listen-on eth1.20
        }
    }