I've posted this question to the Banjo Set-up and Repair forum at the Banjo Hangout and received a fedw good comments. This one appears to summarize the issue perfectly, to my thoughts on the subject:

There are a certain number of banjos with the 5th peg at the 6th fret instead of the 5th, and many of these are longnecks (where it's at the 9th fret instead of the 8th) played by folk singers. Eric Darling had one, and Alex Hassliev of the Limeliters had one. Vega made a model called the "Excel" that was their most expensive longneck that had the peg at the 9th fret.

I make them in a longneck or regular neck and like them just fine, in fact I prefer them.

The 1-fret lower doesn't affect string tension very much. I would balk at 2 frets or more, because you'd be into odd tunings and 5th string buzzing.

The main benefits are:

(1) It allows you to put a capo on the 5th fret very easily without the 5th peg getting in the way in order to play in the key of C using G chords or in E using C chords.

(2) You get a longer 4 string section of neck for playing in first position, much like a plectrum banjo

(3) I'm sure that the reason they were popular had to do with the unusual "look".

This answer comes from uncle.fogey at The Banjo Hangout.