A $6 billion plan to bail out owners of leaky homes is in jeopardy because the Government fears it could threaten the country's credit rating.

Big-city mayors are trying to strike a backroom deal with Cabinet ministers to solve the long-running problem, but both sides have baulked at the huge costs.

The impasse is worrying Auckland mayors, who say leaky-home debt could cripple the new Super City before it starts.

They calculate that even their latest plan to share the cost - rejected by the Government this week as inadequate - will cost the city at least $1 billion and force a 5 per cent rates increase on all Aucklanders.

The mayors of North Shore, Auckland, Waitakere, Tauranga, Wellington and Christchurch have been negotiating in private with Building and Construction Minister Maurice Williamson on the $6 billion deal, which aims to repair all houses covered by council liability in the next 10 years.

The mayors have proposed a three-way split between councils, the Government and homeowners. The Crown would provide interest-free loans for those who could not afford to pay, and elderly owners could pay back the money from their estate when they die.

But the Weekend Herald understands that ministers objected to the price tag for the Government, which could range from $2 billion to $4 billion depending on how many home owners took up the loans.

The extra debt - on top of a $40 billion increase in Government debt over the next four years because of the recession - could force a credit-rating downgrade from international agencies, pushing up interest rates and prolonging the economic downturn.

It is understood the mayors regarded a Government counter-proposal as equally unaffordable for councils.

Auckland City Mayor John Banks said the region faced a best-case scenario of a $1 billion liability over 10 years, based on the proposal rejected by the Government. The Super City would have to borrow to cover this and pay the money back over 30 years.

That meant Super City ratepayers would face a 4.8 per cent rise - $55 million - in the first year to pay for leaky homes alone.

Mr Banks said the bill would be even worse if the Government did not agree to help. "The downside of this is quite mind-boggling."

The former National Cabinet minister said he sympathised with the Government, which he believed would have paid the money three years ago but could not afford to do so now.

"I totally understand the invidious financial position that they have got. They will be very nervous about a downgrade."

However, Mr Banks said the Crown had to remember it was responsible for the slack building rules that let leaky homes be built.

"It was a previous government that put in the legislation that allowed for untreated timber, cavity-less walls, chicken wire and plaster. So they should at the least accept an equal liability with local government."

Mr Banks believed National ministers understood this but he accused officials of behaving like ostriches whenever a hint of legal liability arose.

Wellington Mayor Kerry Prendergast said that after talking with Prime Minister John Key, she was optimistic the Government realised councils could not afford the costs they were now facing.

"He said, 'Leave it with me' ... I understand that they're going to do some more work."

The councils are pushing for a deal because they will be liable for most of the $6 billion cost if cases are settled in court or through the Weathertight Homes Resolution Service.

Builders and developers frequently liquidate the companies behind the projects or do not have enough money to pay, leaving the councils - whose inspectors approved the leaky homes - as the "last man standing".

But even if a deal is reached, it is likely to exclude thousands of owners whose homes were built more than 10 years ago and who have not yet filed a claim. It would also exclude homes inspected by private certifiers for which councils are not liable.

The true cost of fixing all leaky-building claims is understood to be about $11.5 billion - almost double the amount to be covered under the proposed deal - according to a secret report on the scope of the problem, prepared for the Government by Price Waterhouse Cooper.

Homeowners and Buyers Association president John Gray said the plan was just a "backdoor deal" by the councils to avoid their liability.

A spokeswoman for Mr Williamson said the minister would not comment.

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