Some childcare providers are expected to quit, and those who stay in the business may raise their fees, under a new policy requiring home-based carers to become qualified.
The new regime, to be unveiled by Education Minister Chris Hipkins today, will require home-based carers to have, or be working towards, early childhood education qualifications at Level 4 in the qualifications system - one year beyond the top high school exams.
The number of children in licensed home-based care more than doubled in the decade to 2015 from 9770 to 20,505, as nannies, au pairs and grandparents took advantage of state subsidies that are available through any agency with coordinators who are registered early childhood teachers.
Forty per cent of the 7500 carers or "educators" care for only one child each, and 70 per cent are unqualified.
However the numbers in home-based care have declined slightly since 2015 to 18,267 last year and are expected to drop further when the qualifications requirement comes into force.
A Cabinet paper on the changes says many grandparents, especially Asian and Pacific migrants, will not have enough English to get the qualification. They may still look after children but will not get state subsidies.
All au pairs, who are only in the country for a short time, will also lose the state subsidies, requiring families to pay their full costs.
The paper says parents may also have to pay higher fees for carers who become qualified because they will have fewer competitors.
"A smaller market may also result in an increase in costs for parents using home-based early childhood education," it says.
Fees currently range from zero up to $10 per child per hour, or up to $30 an hour for nannies caring for one family.
Hipkins told Cabinet he would consult with the sector before deciding how quickly the new regime would come into force, but would start by lifting the higher funding rates already paid to the 26 per cent of home-based agencies that have above-minimum standards including some qualified educators.
But he said the changes would be "cost-neutral" because the higher subsidies for agencies with qualified educators would be offset by axing subsidies to unqualified grandparents, au pairs and others.
Babysitters and grandparents looking after their own family members are not affected by the change because they do not currently receive a state subsidy.
Marie Smith, 51, who looks after her niece's daughter and two other children at her rented home in the West Auckland suburb of Ranui, said she would be willing to get the qualification as long as she could study at home while still working.
"There's no way at my age I'm going to do three years' fulltime study," she said.
"I'm on my own now, I can't afford not to have an income. But if it can be done by correspondence or at home, different story."
Porse, the country's biggest home-based provider, offers a Level 4 course that can be done online over 20 weeks at no charge to anyone with no other tertiary education who qualifies for the fees-free policy.
The Open Polytechnic is also developing a correspondence course that will replace its existing course costing $944.
Manukau Institute of Technology offers a course taking 19 weeks fulltime or two years part-time for $3000.
Smith has been a home-based carer with Tauranga-based Jemma's for 18 years since her own daughter was aged 3.
"It was originally a way for me to earn a bit of extra income, but also my daughter had someone to play with, so she's had honorary brothers and sisters for a long time," she said.
She offers parents more flexibility than they can get in childcare centres, sometimes starting at 6am or working until 6pm to suit parents' working hours.
Parents pay her $6 an hour for each child, but her three current students are with her for only seven hours, 26 hours and 32 hours a week so she earns only $387 a week before tax for a 32-hour week - well below the minimum wage of $16.50 an hour.
A consultation document last year proposed requiring agencies to pay all educators as employees at the minimum wage or above, but Hipkins says in the Cabinet paper that he has abandoned that idea because "most educators valued the flexibility and choice of being able to work as independent contractors".