New mortgage lending restrictions could cause a dramatic reduction in the number of houses built each year and put many small construction firms out of business, the Registered Master Builders Federation says.
One building company, which gets 50 per cent of its business from customers with low deposits, is preparing to lay off staff because of work slowing.
Master Builders chief executive Warwick Quinn said he had received calls from builders who had lost clients after the Reserve Bank's announcement last month that it would limit the number of home loans on purchases with a loan-to-value ratio of greater than 80 per cent.
Inquiries to builders about new homes had slowed.
"If they're continuously seeing work slipping away from them, there is extra financial pressure and some may indeed be affected where they can't survive," Mr Quinn said.
About 100,000 homes were sold around the country each year. Of those, 20,000 were newly-built - 55 per cent in Auckland and Canterbury. Mr Quinn estimated that 15 per cent of those were for customers who required high loan-to-value lending - many of them first-home buyers.
That equated to about 3000 new homes a year that were at risk of not being built.
"That has significant flow-on effects to the economy, housing affordability and stalls construction sector expansion," Mr Quinn said.
He had met Reserve Bank officials to discuss home construction being exempt from the policy but said he was told there wasn't sufficient data available on how many people building homes were low-equity lenders.
The Building Research Association would survey the building sector to see how companies were affected, and Mr Quinn said he would present that information to the central bank.
A spokesman for the Reserve Bank told the Herald that making exemptions to the rules it had imposed to address rising house prices would undermine the effectiveness of the actions.
"Our judgment is that exemptions would add significant complication and costs to the LVR restrictions, while providing limited benefits," he said. "They could also provide an opportunity for people to avoid the intent of the restrictions.
"Actions to address the issue of housing supply, including new house building, are being pursued by the Government, local councils, and the private sector."
Lindsay Cunningham, of Golden Homes said half the company's customers had low deposits.
They had lost three building jobs this week, and a further 12 people who had inquired said they couldn't go through with the deal.
"In most of those cases, they said 'Look, we're never going to get near a 20 per cent deposit, let's just call it quits now'."
The company usually built up to seven homes a month and had 12 permanent staff and employed about 30 contractors.
"If we do have a significant downturn, which we believe is coming ... at that time we're going to have to look at staff levels. It's a fairly ludicrous change because we're trying to solve a problem here with a shortage of housing. Well, stopping people building houses, how does that solve that problem?"
NZ Bankers' Association chief executive Kirk Hope said it would be "counter-productive if the new lending limits proved to be a barrier to improving housing supply".
Auckland mortgage broker Bruce Patten of Loan Market, which administers lending through ASB, said he was concerned people would rush out and buy homes to meet the Reserve Bank deadline but not be able to fulfil the pre-approval criteria.
"Someone might panic, go out and buy, and in the mean time they've gone and taken out a personal loan for $9000 to replace a car, and that will suddenly change the circumstances of their current approval, which will mean the bank will be within their rights to say 'Something has fundamentally changed, so we are within our rights to say, you have to re-apply for the application'. And under their new criteria they might not approve it."