New research from the Home Builders Federation and Quantum Development Finance has found that 91% of SME housebuilders believe that the impending Building Safety Levy will make developments financially unviable.
36% of SME participants said that the levy, which is due to come into effect on 1 October 2026, has already led to them delaying, redesigning or cancelling schemes.
The HBF says that the incoming levy will add further pressure to an industry already facing sharply rising development costs. The organisation’s recent Viability Crunch report found that the cost of building a typical new home has increased by around £76,000 over the past five years. The Building Safety Levy accounts for £2,320 of this increase, alongside other taxes, levies and inflationary pressures, adding to a growing burden of taxes, levies, policy requirements and inflationary cost pressures.
The report also highlighted a disappointment among SMEs that an exemption was ruled out for medium-sized developments. The HBF says that applying the charge to these sites will disproportionately affect smaller developments, many of whom have never built high-rise buildings and played no role in creating the building safety issues that the levy is intended to address.
Unlike larger developers, SMEs will also be required to pay the levy when the first home on a site is completed, placing additional pressure on cash flow at one of the most financially constrained stages of development.
The HBF is calling on the government to pause the introduction of the Building Safety Levy and undertake a full assessment of its necessity and potential impact before it comes into force. This would also include a clearer analysis of the remaining remediation costs and the effect the levy could have on the delivery of both private and affordable homes, particularly given that more than £2.5billion of the existing £5.1billion Building Safety Fund remains unallocated.
The survey highlights growing concerns that the levy will deter future investment in much-needed housing. 69% of SME said the Building Safety Levy would make them less likely to invest in new development opportunities, with a further 9% believing it was too early to say.
It found that the perceived impact of the Building Safety Levy is particularly acute in London, where 86.7% of respondents said it would make them less likely to invest in new development. The HBF says this is especially concerning due to the persistent underperformance against housing targets in the capital.
Respondents in other regions also expressed significant concerns about the levy reducing their ability to invest, including the West Midlands (85.7%), the South West (82%), the East Midlands (78.9%) and Yorkshire (76.9%), highlighting the widespread impact the levy could have on housing delivery across England.
Neil Jefferson, chief executive of the Home Builders Federation, said: “The government has set ambitious housing targets, but the ongoing layering on of costs onto development by successive governments has made a growing proportion of potential house building sites unviable.”
“The new levy, compounded by other rising costs, tighter margins and challenging market conditions, will make even more developments unviable. SME developers in particular are being forced to rethink investment decisions, delay sites and reduce output as costs continue to increase.”
“The home building industry is already making a substantial contribution towards the cost of remediating historic building safety issues, yet this levy places a further burden on developers who played no part in creating those problems.”
“We are urging the government to pause the introduction of the levy and assess whether it is still necessary, particularly given the significant unallocated funding that already exists.”
Richard Hemmings, managing director of Quantum Development Finance, said: “Requiring the levy to be paid when the first home on a site completes, rather than on sale, is yet another cost SME house builders are being asked to absorb at a point in time, in both the current economy and the lifecycle of a project, when they can least afford to. If we are serious about helping SMEs deliver more housing, this is yet another shift in the wrong direction.”
“It’s also difficult to justify applying this charge to medium-sized sites. Many of these developers have never built a high-rise building, and played no part in the historic safety failings the levy is intended to address. Yet it’s SMEs who are being asked to help foot the bill.”
“With £2.5billion of the existing £5.1billion Building Safety Fund still unallocated, and the wider market already under significant pressure, we have to ask whether now is really the right time to introduce a further levy. The government should pause, use the funding it already has, and properly assess the impact before pressing ahead.”
