Because if we don't offer the contract someone else will - we also aren't an attractive club compared to other PL teams - location or size of club - so to make it more atractive we probably have to pay slightly more.
On the flip side - doesn't mean you give into agent and players demands and roll over, but I suspect we are paying market rate for wages or slightly above - I'm not sure we are out of the ordinary here.
We could pay less in wages and offer shorter contracts but you will end up with a team full of average players, it's a tricky balancing act.
Also offloading a player who you think is mustard at the time then turns out to be cr*p, it becomes harder.