response.on('data', ...) can accept a Buffer, not just plain strings. When concatenating you are converting to string incorrectly, and then later can’t gunzip. You have 2 options:
1) Collect all the buffers in an array, and in the end event concatentate them using Buffer.concat(). Then call gunzip on the result.
2) Use .pipe() and pipe the response to a gunzip object, piping the output of that to either a file stream or a string/buffer string if you want the result in memory.
Both options (1) and (2) are discussed here: http://nickfishman.com/post/49533681471/nodejs-http-requests-with-gzip-deflate-compression