Council chief executive Tim Grafton made the prediction in response to new data, released by GNS Science, which suggested parts of South Dunedin could be sinking.
The potential subsidence - of up to 5mm in places - adds to existing concerns about sea-level rise, rising groundwater and flooding in the low-lying suburb.
It also raises fresh questions about the ability of homeowners to continue to insure their properties against flood-related damage in the longer term.
Dunedin Mayor Dave Cull said it was "too early to be drawing too many conclusions'' about the impact on insurance in South Dunedin.
But University of Otago School of Surveying lecturer Dr Paul Denys said the attitude of insurance companies could play "quite a crucial role'' in the area's future.
If companies withdrew cover, or hiked premiums to an unaffordable level, "ultimately that might be the way it [South Dunedin] becomes uninhabitable'', he said.
Mr Grafton, responding to ODT questions, said long-term risks posed by sea-level rise were unlikely to affect premiums in the short term.
However, premiums "may progressively increase over time, reflecting any gradual rise in risk'', he said.
"It is likely that any insurance impact will vary from property to property depending on the degree of exposure and risk, based on information such as building design, other hazards that might exist and risk factors and mitigation.''
Assessments would be made property by property, and options included increasing excesses or premiums, but excluding cover for a particular hazard would be "a last resort'', he said.
"Each insurer might respond to this differently depending on their appetite or understanding.''
However, the risks posed by subsidence "needs to be kept in perspective'' compared to predicted levels of sea-level rise, he said.
