From my email, from Ryan Reynolds:

I’ve worked in Palmerston North, as well as Tauranga and Auckland (all briefly). I’m Australian too, so my perspective may be shaded vs what a Kiwi or someone from further afield might say.

The major issue is just supply of new dwellings and the permitting and development process. All the rest of the factors noted point to increases in demand (immigration, natural population growth, easy credit, real income growth, tax structures, chinese buyers) – but without a limit on supply you would have expected those factors to result in a building boom not a rapid price appreciation. That’s obviously not the way reality has played out.

From a permitting side, the Resource Management Act heavily constrains lots of building decisions and imposes a lot of bureaucracy (and time delays and uncertainty). Less specifically, Kiwi’s appear to have strong preferences for careful building and urban sprawl in lots of dimensions. That includes specific issues like building heights, overshadowing, retaining views of specific hills or valleys (including Maori heritage sites) and retaining its environmental and cultural heritage (however brief it may seem to outsiders). These preferences are captured in major urban plans which set out acceptable terms for developments, but often even urban plans won’t contain enough zoned land to meet demand (see the bun fight over the Auckland Unitary Plan from 2016), and even then those plans took years to put together. This plays out in a strong community undercurrent and politicians of both stripes use scare campaigns about the horrors of inappropriate development. Anything two stories or over can count as ‘inappropriate’.

From a policy perspective there seems to be no understanding of the practical trade off between housing demand and conservation, except from economists outside the planning departments (see NZ Initative or Michael Reddell, ex RBNZ) or from the central government threatening to unwind urban plans.

The second issue is that NZ also has a lot of partly and wholly government owned and operated utilities (water supply, networks and wastewater; electricity and gas networks; electricity generation) and services provided under government monopolies required for new developments (roads, education, healthcare, and other social services). In many cases the entities charged with providing these services are capital and/or budget constrained and they don’t have the funds to provide major new capex works in the short to medium term. Furthermore, the revenues earned from providing these services are often inadequate to cover economic costs. For instance, water supply and wastewater is provided at below cost price in many cases in NZ, and in large parts of the country water supply is un-metered. And there is serious community opposition to either privatization or changes in tariffs. As a consequence though, capex projects in the water sector are effectively large donations of capital for no return for the water corporation. As is the case for virtually all roads, schools, or hospital projects, any of which could prevent or stall major new urban developments. So even if new land was zoned as ‘fit for development’ (which it won’t be), the entities required to facilitate that development don’t have the funds to do so and nobody else is allowed to fill that gap.

And yes, Palmerston North is still dull. But then people say that Switzerland is dull too. I’ve seen much worse.