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A large institution may be risk averse. But a smaller firm trying to gain ground in the market would likely be more than happy to take on the risk and slimmer margins. After all, if capitalism wasn't okay with slim margins, then restaurants and grocery stores wouldn't exist.
Yes, and then that smaller firm fails because they take too many risks that have little chance of success. They end up being bought up by the larger firms, and all their assets put towards those higher value investments.
Sure, that could happen. But at that point, the smaller firm has already done its risky work so the people can benefit from it. And another small firm will step into the market to fill that niche.
New construction works on too long a time frame for this. It's not liquid enough, and the level of capital you need to engage in the process is not trivial.