Same with enormous yachts, or hoarding more money than you can possibly use meaningfully in the first place - it's the mentality that bigger/more is better, and it's also to show off their status or increase their status in their own minds.

They have to spend their money on something to feel like they're benefiting from making so much, and a house is the obvious choice. It's their home, houses are expensive, and nice houses are better than cheap houses (like you say, there's no point in having a house with 25 rooms, but it comes back to their mental extrapolation that bigger is always better).