The rail is already there, and already maintained, so its not really a consideration. Both of those routes i've mentioned are already in use for a small number of daily freight runs and due to their weight in comparison require far more maintenance than some relatively lighter passenger carriages would. Road also costs a lot of money to build, and increasingly more money to maintain - both of those calculations increase the more lanes a road has too. I wouldn't expect the Hawkes Bay Regional Council to have to fund all of that themselves, especially as the idea is to mode shift vehicles off State Highway 2, which is central government funded.
More cycleways is always great; but a railcar set that can do >100km/h on a route like Waipukurau to Napier with capacity for say 100-120 commuters or shoppers is 100 vehicles worth of congestion and pollution off the road. Its also a distance that almost nobody is going to commute on a bicycle, particularly when the weather is wet and/or cold. If it proved popular enough you can expand the set to carry more people or add additional service times as well and the beauty of that stretch of rail is that originally there were a lot of small stations built which were closed in the 80s when the areas they served became less than villages. Some of those areas have subsequently become quite popular for lifestylers so over time considering opening the stations back up would be a possibility.
Its easy to make passenger rail look impossible if you try to make it so the passenger services have to fund the entirety of the rail infrastructure - but NZ has always run freight and passenger on the same rail and in the past used to run far more services than we do now. I'll concede building passenger rail is an overly expensive proposition for the population outside of Auckland, but my point is that in many places we don't need to the rail is already there and once its there you don't need 5 million people to make it thrive - see Wellington's commuter rail network.