Probably because they're optimized for low-latency.

Anyway, by hardware encoders people typically mean dedicated hardware.

In short - on the CPU the encoders spend more time looking for similarities between frames and have access to more frames of history to find repetitions. Finding similarities is where all the compression comes from.

The hardware encoders are designed to be fast (at least realtime), small (in component count) and power efficient so they usually don't have the ability to do extensive searches for similarities in frames to really squeeze out the best compression. Pretty much all of them are also largely fixed in supported operations during encode so you can't really implement better algorithms with software updates on them.

Making them better would mean growing their (sillicon) size which would make the graphics cards more expensive to produce and take space away from actual GPU cores. Most customers don't buy a GeForce for its video encoder. And once you'd grow them enough, you'd get something similar to a CPU anyway.

And this is how we get back full circle - even enterprise "encoder-in-a-box" providers have lately gone from boxes with ASICs in them to essentially seling proprietary servers with normal CPUs and proprietary OS on them. With the current prices of 64-core+ CPUs, it just doesn't make much sense to design ASICs and HW encoding blocks for these types of encodes.

Realtime encoding is, of course, another game.