In Wellington at least (where I live), there are limits on the density of housing that can be built (and height). Recently, the council was going to free up some of these restrictions a bit, but there was a lot of backlash by residents who didn't want the "character" of their neighbourhoods to be affected, so the relaxation in the rules has been a lot less.

Wellington is a bit different in that there is a limit on the amount of empty land in the centre and the neighboroughing regions: it's quite hilly and pinned in geographically, and most of the central regions are fairly built-up already. Some areas (near the CBD) were also built up on reclaimed land from the harbour, and what with earthquakes, that's not great...