The Building and Construction Minister says he would never allow earthquake policies to destroy small-town main streets.
The Otago Mayoral Forum and 10 local councils from Timaru south on Friday released analysis suggesting that building standards proposals could cost their communities up to $1.8 billion.
The Government estimates its proposals to give most-non residential buildings 15 years for strengthening or demolition would have a national cost of about $1.7 billion.
But analysis commissioned by South Island councils from a financial modelling firm shows the potential cost for just the bottom half of the South Island could be higher.
The councils say assessments alone on 22,600 buildings could cost them $30 million.
In a joint statement, the councils say rural provincial areas would be seriously disadvantaged by the changes, and many businesses could close or leave the south unless the rules are made more flexible and affordable.
They say the Government's proposal could lead to the destruction of some town strips. Dunedin mayor Dave Cull believes the south would be hit hard.
"There are smaller towns, for instance, in the country - and I imagine there's some in the North Island too - where the whole main street would be probably earthquake-prone under any kind of judgement.
"The economics of strengthening those compared with the risk to people could get out of kilter."
Mr Cull says the south of New Zealand has a greater proportion of older buildings but less ability to pay for upgrades.
But Building and Construction Minister Maurice Williamson says the council-commissioned analysis is extreme and unhelpful because it paints a worst-case scenario that he has already ruled out.
Mr Williamson said neither he, nor New Zealanders generally, would accept a regime in which whole streets are demolished.
The minister said North Island regions such as Wairarapa and Whanganui face the same problems as the south does, and cheaper solutions must be found alongside minimum national standards.