What is it that actually goes negative when the house risks over 2x Kelly? And it can't be the expected bankroll growth, since that's simply the expected profit per bet summed (or averaged) over all the bets, which therefore is also a constant 1%.
It's the bankroll that goes negative. The casino starts losing money if the allowed bet is too high, it's a statistical certainty long term.
Here's a simple script I made that may help you wrap your head around it:
https://jsfiddle.net/089vv8wh/It's set to 50% max profit so you can see how quickly it goes down.
Try setting it to 1x kelly or lower (and ramping up the loop count) to see positive growth.