In an ideal real estate market, high rises are the most cost effective form in a downtown or city centre type environment. A midrise shouldn't be more expensive than a 50 storey or an 80 storey skyscraper that takes vast sums of institutional capital and 3 to 5 times longer to develop. Midrises aren't being built in part because we have runaway real estate speculation and planning policy that sympathizes with the speculation. Real estate values are capped accordingly in parts of the city where asking above and beyond current density and/or height limits is a fools errand. Dozens of midrises are going up in these areas and I can't think of a single one selling in the ultra wealthy range.
I don't think I'd agree. Mid-rises as a product type are riskier to build for a few reasons.
First, as a smaller project there is less profit in absolute dollars to be made, and less contingency, and so unforeseen problems have a much greater impact on a mid-rise than a high rise. For example, if you happen to identify contaminated soils after you demo your site and do more boreholes, and it costs you a million dollars, that million is a direct hit to your bottom line. On a project that might make a 10 million dollar profit vs a 50 million dollar profit, the impact is 10% to the profit line vs 2%. Doesn't take many of those problems (which happen in different forms on almost every project) to erode any profits away.
Second, your budgets naturally get smaller for everything. What happens if the mid-rise site (which is often in a less desirable location and needs more marketing dollars to sell) doesn't sell as quickly as expected. Spend another 250k on advertising.
Third, from a design standpoint, mid-rises tend to not be typical in nature. They have setbacks and elevation changes. High-rises are almost entirely copy and paste for the majority of the floors. So your soft costs and fees on a PSF basis are usually smaller on a high rise, and your construction efficiency is better, so you get better trade pricing.
Fourth, the construction market is so busy that most quality trades only want to do large scale projects. So you get stuck with B and C trades who screw things up, and end up costing you money, time, etc. This is not even counting the pricing risks mentioned above due to the product type being atypical in nature.
Fifth, the types of investors willing to invest in mid-rises as a result are a lower tier. Higher cost of capital, which means less profit potential on a deal. The majority of mid-rise builders are less sophisticated so they might be willing to take a smaller return. They are often the ones who don't last very long in the industry. This is not a hard and fast rule as there are a few who have carved out their niche, but if you look at the builders doing a lot of mid-rise they're probably not the top 10 names you'd think of in Toronto development.
The only way mid-rises can become a viable category to move the needle on solving supply constraints is if as of right zoning is implemented along all avenues. There should be a standard methodology (ie. 45 degree angular plane to the neighbourhood and height of the width of the right of way). If by doing that a developer can shave 18 months from their schedule and go straight to market, that smaller margin project that gets built in 24-36 months instead of 42-60 months can make a lot more financial sense on an IRR basis. This could help attract better capital into that product type, and get larger scale developers pushing that product type more as it may end up being less headaches and risk.