Wellington mayor Kerry Prendergast wants the Government to look again at the requirement for a 20-day deadline for processing resource consent applications.
From Monday, councils must process the applications for consent for new buildings, renovations and developments within 20 working days or refund part of the application fee.
A discount will be applied of 1% for each day a consent is processed beyond the 20-day mark, up to a maximum of 50% of the fee.
Fewer than half of applications are processed within that time.
Environment Minister Nick Smith says there is a real cost in jobs and economic activity because of the delays, and the financial penalties for councils will help focus officials on the importance of timeliness.
Ms Prendergast, who is also vice-president of Local Government New Zealand, says the deadline will work for simple applications, not larger, more complex cases.
She says the move could hurt some small provincial councils as they try to process consents for large energy projects in a short time.
However Dr Smith rejects this, saying the act provides for an extension for big projects.
Changes long overdue - business groups
Business leaders say making councils accountable for delays in processing resource consents is long overdue.
The New Zealand Business Council for Sustainable Development says councils need to manage the process better and delays are hampering economic growth.
Executive director Peter Neilson says councils must ensure that applicants have all the information they need at the start of the process.
Mr Neilson says 70% of applications are missing key information when they are first submitted, but councils fail to tell the applicant in a timely manner.
The Property Council says delays can add hundreds of thousands of dollars in extra costs to a big project.