Officials are advising that landlords may choose to exit the rental market and opt to put their property on Airbnb as a result of new minimum rental standards.
They have also warned Housing Minister Phil Twyford that low-quality rental properties were more likely to be sold off, as it would be too expensive for landlords to comply with the rules.
Act leader David Seymour says it was concerning that, in the middle of a housing crisis, the Government had decided to make it harder for those providing housing.
Yesterday, Twyford announced that from 2021, all private rental homes would be required by law to have a heater that can heat a main living area to 18C.
Kitchens and bathrooms will be required to have extraction fans or range hoods and the minimum level of ceiling and underfloor insulation would need to be at least 120mm thick, or meet the 2008 Building code.
Twyford said this would cost the average three-bedroom home, which did not meet the standards, roughly $7000 to upgrade.
Both National and landlord lobby groups were quick to say the new rules would end up meaning renters would pay more.
A regulatory impact statement (RIS), written by the Ministry of Housing and Urban Development, shows officials were warning Twyford this would be the case.
"It is likely that landlords will increase the rent they charge a tenant to offset, to some extent the, costs incurred from upgrading their properties, or choose to sell their properties."
They point out that a property is more likely to be sold where the costs of retrofitting are large.
This is more likely to be the case with low-quality properties, the RIS said.
"Alternatively, some rental properties may be removed from use in long term accommodation altogether, and switched into short term accommodation, for example, Airbnb."
Officials say owners of low-quality houses may need more substantial repairs to meet the minimum standards.
"These are more likely to be sold, either to another landlord with more capital available, or to an owner-occupier."
Seymour said this comes as Twyford had failed to help increase the supply of housing in the market.
Earlier this month, Reserve Bank Governor Adrian Orr said he expected KiwiBuild to have a significant "crowding out" impact on the private sector.
Seymour said the cost of complying with the new minimum standard rules will have to fall on either tenants or taxpayers.
"Either tenants will pay higher rents, the taxpayers will pay more in rent subsidies, or properties will be withdrawn from the market completely."