I understand you're making a brief comment outlining a position, but personally, I don't see how you can be satisfied with that explanation.
Say I have two opportunities, one pays $200/hour and one pays $100/hour. But I can only do the higher-paying one for 10 hours a week. If I have more capacity and I want to have more than $100k in annual income, I will work the less profitable job, even if it doesn't provide the maximum profit.
Similarly, in the market in general, if there's demand for housing at a lower profit margin, and there's spare capacity to build it, it should happen. People don't just take the highest profit margin opportunities and toss the rest in the rubbish. So I think there has to be a deeper issue, for example there are costs that make the profit margin so low (or even negative) that the opportunity doesn't attract sufficient labor to build the supply.
Say I have two opportunities, one pays $200/hour and one pays $100/hour. But I can only do the higher-paying one for 10 hours a week. If I have more capacity and I want to have more than $100k in annual income, I will work the less profitable job, even if it doesn't provide the maximum profit.
Similarly, in the market in general, if there's demand for housing at a lower profit margin, and there's spare capacity to build it, it should happen. People don't just take the highest profit margin opportunities and toss the rest in the rubbish. So I think there has to be a deeper issue, for example there are costs that make the profit margin so low (or even negative) that the opportunity doesn't attract sufficient labor to build the supply.