The government has told home-based early childhood businesses to get their carers qualified or lose access to subsidies totalling more than $150 million-a-year.
It has announced a new requirement that all home-based carers must have at least a level four certificate in early childhood education, as well as new rules for quality assurance and training.
Education Minister Chris Hipkins said most in-home carers did not have an early childhood qualification and the changes were likely to drive some operators out of business.
But reforms would help improve the quality of education provided by the home-based sector, he said.
"If we are going to continue to put significant amounts of government subsidy into home-based early childhood education, we want to know that those kids are getting a quality education."
The government would discuss an appropriate deadline for the qualification requirement with the home-based sector.
"We haven't set a specific date for that because we want to work with the sector to make sure that we're getting the right training and the right incentives in place.
"I'm hoping that the sector will take this up quite quickly."
Mr Hipkins said future increases in government funding would be tagged to quality improvements and services that did not have qualified carers were likely to lose out.
"It is likely that our higher requirements and greater scrutiny will result in some providers exiting the market or moving to informal arrangements that no longer receive public money.
"These are most likely to be providers where educators are au pairs or family members, or the service specialises in short-term care arrangements."
Mr Hipkins said 70 percent of home-based carers had no early childhood education qualification, 7 percent were registered teachers, and 22 percent had a level three early childhood education qualification or credits towards a level four.
The government would also give the Education Review Office the power to enter homes where home-based early childhood education was taking place and require health and safety training.
"We really welcome this step, it's in the right direction," president of the Home-Based Early Childhood Education Association, Susan Phua, said.
She told Morning Report many of the members of the association do have qualifications.
"I think people come into working as educators because they're really passionate about working with children, this gives a really clear pathway that they can gain a qualification while they're working and that if they choose, they may also lead on to further qualifications."
What is home-based early childhood education?
Home-based educators provide care for under-five year olds in the child's or carer's home.
They can be licensed for a maximum of four children and though the carers do not have to have a relevant qualification, they are overseen by a qualified teacher who visits occasionally.
The government pays about $8 an hour for each child under the age of two. For older children it pays about $9 an hour for the first 20 hours and about $4 an hour thereafter.
Home-based early childhood education had grown rapidly from about 11,000 children in 2007 to more than 18,000 in 2017, or about 10 percent of all early childhood enrolments.
Ministry of Education figures show there were 7770 home-base educators last year.
About 40 percent of carers work with just one child a week, and about 12 percent have between five and 13 children.
Government taskforces previously urged the then-National government in 2011 and 2012 to urgently review the home-based sector with both groups critical of the sector's lack of registered teachers.
In 2012 the Ministry of Education warned the government that subsidies for home-based care could be paying for housework and informal child-minding.
Home-based organisations have argued that they are more child-friendly than early childhood centres with large numbers of children in one building.