I believe the other reason this happens is “extend and pretend” [0].
Basically the bank issues a loan to a developer, based in part on how much income the developed property is expected to bring in. If the expected revenue isn’t coming in (say because the rent is too high), the bank doesn’t always want to admit that it’s a bad loan and call it a loss, so they extend (the length of the loan) and pretend (that the rent the developer is trying to charge is realistic). This incentivizes the developer to keep the high rent as-is even though nobody is going to pay it.
A case of terrible incentives causing terrible outcomes.
Basically the bank issues a loan to a developer, based in part on how much income the developed property is expected to bring in. If the expected revenue isn’t coming in (say because the rent is too high), the bank doesn’t always want to admit that it’s a bad loan and call it a loss, so they extend (the length of the loan) and pretend (that the rent the developer is trying to charge is realistic). This incentivizes the developer to keep the high rent as-is even though nobody is going to pay it.
A case of terrible incentives causing terrible outcomes.
0.https://www.wsj.com/articles/SB10001424052748704764404575286...