The city doesn't want commercial real estate values to collapse either, since buildings are taxed based on their value. If extend and pretend is ending, tax revenues are about to take a nosedive.
The city is better off having its citizens participate more in the economy and paying taxes through it than staying home or not starting business because rent is too high.
Not necessarily. That's what's best for the city as in a geographical area where people live. What's best for the city as in an organisation with bureaucrats and finances is probably whatever increases revenues.