Institutional failure of societal sectors has become a challenging subject of public inquiry since the financial crisis. In this paper these sectors are conceptualized as publicly governed networks of organization executives, supervisory boards, regulatory agencies, and governmental representatives. This type of network is approached as a complex adaptive system. A theoretical framework is set up to determine under which conditions the networks fail. The predictive and explanatory power of the framework is tested in a particular case, namely the Dutch public housing sector. The Dutch central state has applied both new public management and network governance techniques to promote self-regulating and responsible operation of the housing corporations. At this moment, all participants critique this transformation because of continuing organizational breakdowns and inability of the network to correct failures in advance. A conclusion is that ill-considered network governance engenders drawbacks and might even escalate into a sector crisis.