The Building Safety Levy has today been introduced, further rising the cost of delivering new schemes for housebuilders.
The new tax will be applied to new residential buildings, with some in the industry concerned that the Levy will make more developments financially unviable, particularly for SME builders.
The Levy was initially legislated for under the 2022 Building Safety Act, with its implementation delayed for a year by the current government.
Its intended purpose is to collect £3.4billion from housebuilders in the UK to use for building safety-related purposes. The Levy will be charged before the completion of building work and the occupation of buildings, and will be collected by local authorities.
Two levy rates have been published for each local authority in England, adjusted to local house prices, with each local authority given a brownfield rate, expressed in £/m2 terms for gross internal floor area, and a greenfield rate which is twice as much per square metre.
Affordable housing will be exempt from the Levy, as will other forms of development, such as care homes.
The Home Builders Federation has previously said that it opposes the tax and called for it to be suspended, stating that it is unfair that one sector is expected to fund over £9.4billion in remediation costs single-handedly.
Paul Rickard, Chief Executive of Pocket Living, said: “The introduction of the Building Safety Levy could not have come at a worse time for the housebuilding sector. With the exceptionally high costs of construction and development being viable in a little over a third of the country, this new tax will do little to improve the delivery of new homes. This is a tax payable towards the end of the scheme but before a home is sold and a developer is in receipt of funds – creating another liability with no cash having come in with which to pay it. At the same time, £2.5billion of building safety funds remain unallocated, and developers are going insolvent every day. It’s clearly too late to defer the Levy’s introduction, but not too late to introduce an emergency exemption from it, especially for SMEs until this housing delivery crisis is over.”
Andrew McEwan, Partner, Commercial Real Estate at Forsters, commented: “The real test of the Building Safety Levy will be whether it can raise the revenues intended without further constraining an already limited development pipeline.”
“Because the Levy is triggered at building control rather than planning consent, schemes with planning which have not yet applied for building control/Gateway 2 approval may be already progressing on financial assumptions that did not include the Levy and so may now need to revisit viability assessments. Particularly exposed are high-rise, amenity-heavy BTR/PBSA schemes. Likewise, any pre-1 October applications which are refused GW2 approval may find themselves subject to the Levy upon resubmissions. If projects are delayed or no longer stack up financially, the loss of development pipeline will end up reducing the revenues generated by the Levy as well as hampering crucial housing delivery. Over time, the market will need to price the Levy into valuations, but that cannot retrospectively change the economics of sites already acquired.”
