It can be useful to create wildcard domains for local services. Rather than create one for each local service, a wildcard is easier. It would be easy to use dnsmasq to do this, but Pihole no longer directly supports that.
There are two options to get this to work:
The developers of Pihole anticipated that we might have this very need. In the GUI, switch to Expert mode and then go to All Settings->Miscellaneous. Scroll down to misc.dnsmasq_lines where you can add individual values that will be injected into the configuration.
Add address=/.local.mydomain.com/192.168.1.16 for a wildcard. (The leading . is vital!)
You can create wildcard domain directs using a regex rule in Pihole like this:
(^|\\.)local\\.mydomain\\.com\$;reply=192.168.1.16
Set the rule to "Regex Deny" to have the rewrite work.