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A Dunedin tavern owner says he may be forced to sell cheap alcohol late at night if his bar has to close earlier on Friday and Saturday nights.

Seven residential bars are fighting a reduction of their hours as part of the city's new local alcohol policy, which came into effect on February 1.

Under the policy, residential bars now have to close at midnight on Friday and Saturday nights and 11pm during the week.

The Baaa Sports Bar and Grill, Eureka, Mosgiel Tavern, St Kilda Tavern, Mornington Tavern, Starters Bar and Cableways, are challenging their classification as residential, which is not defined in the policy.

Dunedin district licensing committee members Colin Weatherall, Andrew Noone and Colin Lind heard the first three of seven hearings yesterday.

Mornington Tavern owner David Miskimmin said he would lose money if his closing times were reduced and would need to find other ways to increase revenue.

One way would be to create a happy hour from 11pm until midnight and offer discounted shots 15 minutes before closing time, Mr Miskimmin told the hearing.

"I mean it's a bit ridiculous and I don't want to have to do it, but I've got to look at my options."

It would be much safer if patrons were able to continue drinking at his bar until 1am or 2am then be taken home, instead of being put in a taxi and dumped in the Octagon, he said.

Many other premises in the city were in similar areas and had not been classified as residential, which put him at a commercial disadvantage, he said.

Mosgiel Tavern owner Cathy Maaka said following informal conversations and at least two meetings between bar owners, licensing committee members and council staff in 2015, operators were assured the licensing committee would have the flexibility to consider applications for later closing times on a case-by-case basis.

Hospitality New Zealand withdrew its objections to the policy on that basis only to discover residential taverns and bars could not have their hours extended, Ms Maaka said.

Of the three on-licence premises in Mosgiel, which is all residential or suburban, only her tavern was affected by the change, she said.

Mr Weatherall said the committee could only make a judgement if the applicants were within a residential area but all evidence provided would be considered when the decisions were being made.