Education Ministry figures show a dramatic dip in the number of new early childhood services.
Only 109 new services were set up in the 12 months to the end of June last year, one of the lowest figures in the past 20 years and a big drop from recent annual totals of about 140 to 160.
On the other side of the ledger, 88 services shut down, continuing a spike in service closures that saw 359 services shut shop in the past four years.
From 2000 to 2016, the average number of closures per year was 55, but the average for the past four years was 90.
Nearly half the services closed last year were home-based services and two-thirds were privately owned.
The figures show a rising number of community-based centres has been closing in the past three years - 30 in the 12 months to the end of June last year, 40 in the previous period, and 35 before that.
Early childhood centre owner Maria Johnson said it was becoming increasingly difficult to run a centre.
"There's a lot of pressure on centre owners and I think normally when there's a lot of centres opening, which there have been in the last number of years, it's normally people who have got more than three or four centres and they're expanding and I think now because of the shortage of teachers in the country and of course with Covid on top, they're reevaluating their business decisions," she said.
Johnson said the market might not be big enough for more services.
"I think there is a saturation in the market at the moment. It's definitely a parents' picking field of where they can go and where they want to go, which is great for parents," she said.
"I definitely think the level of quality that we have in our sector has deteriorated over the years and that needs to be addressed by the ministry."
Te Rito Maioha Early Childhood New Zealand chief executive Kathy Wolfe said low government funding would have contributed to many of the closures in previous years but the pandemic would have affected last year's figures.
"To be fair that still hasn't gone away but definitely during last year the financial pressures and the stresses that Covid placed on some centres would have escalated and that would have impacted on the centres that have closed," she said.
Wolfe said some of the closures would also have been due to the Education Ministry cancelling the licences of services that failed to meet minimum standards.
Early Childhood Council chief executive Peter Reynolds said some early childhood services had been struggling for a while and the pandemic had made the situation worse.
"Some services were really pushed to the wall as a result of Covid and the changes to the rules around things like wages subsidy, so some of those services would have said look this is all just getting too hard and they didn't have insurance support or what-have-you and they ended up shutting as a result," he said.
Reynolds said the relatively high number of closures of home-based services was likely to continue because some would not want to comply with new rules requiring caregivers to have at least a diploma qualification.
"While that's not required right at the second, many are looking at this and saying look we need to get to a point where the people have got qualifications in place so some educators are looking at this and saying this is all just getting a wee bit too hard and some network providers are also looking at it and saying it's easier to shut down and move on."
He said the pandemic was unlikely to have affected the number of new services opened last year.
Home Base Childcare Association president Erin Maloney said the association supported the shift to a qualified workforce but some services had decided training their educators was too difficult and were shutting up shop.
"The government have mapped out a direction they want to go in over the next 10 years and providers very much as a part of that have had to opt in or opt out," she said.
Maloney said home-based services had coped relatively well with the pandemic because they had been able to provide care for the children of essential workers during last year's lockdowns.
"We had a lot of nannies and educators going into family homes during lockdown when other early learning services like centre-based services and larger group-based care options were no longer able to operate in a safe way."