The local government sector is on the brink of a major funding shortfall, and it could be in the billions of dollars.

New research from the New Zealand Initiative has found the sector could have a funding gap of six to seven billion dollars by 2022.

That's because infrastructure depreciates and requires renewal, while council spending and rates remain stable.

Rates have been in long-term decline since the 1940s relative to housing stock value and GDP, as councils have amalgamated and centralised.

Initiative executive director Dr Oliver Hartwich said councils find it extremely difficult to convince ratepayers to accept higher rates and extra debt.

He said councils have more incentives to reduce rates, than to promote economic growth.

Local Government New Zealand is challenging central government to prevent the shortfall.

President Lawrence Yule said the Government should be open to new ways of raising funds and delivering services.

That could include public-private partnerships, and more collaboration between central and local government.