As the home building industry prepares for the imminent imposition of the Building Safety Levy, another tax on development that threatens site viability even further, new research from the Home Builders Federation (HBF) and Quantum Development Finance reveals widespread concern about its impact on housing delivery.
The research, based on a survey of SME home builders across England, found that more than nine in ten (91%) believe the levy, due to come into force on October 1, will make developments financially unviable. More than a third (36%) said they have already delayed, redesigned, or cancelled schemes in anticipation of its introduction.
The incoming levy will add further pressure to an industry already facing sharply rising development costs. HBF’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. This will further compound the financial pressures facing smaller home builders, adding to an already growing burden of taxes, levies, policy requirements, and inflationary cost pressures.
SME home builders also expressed disappointment that an exemption was ruled out for medium-sized developments. Applying the charge to these sites will disproportionately affect smaller developers, many of whom have never built high-rise buildings and played no role in creating the historic building safety issues the levy is intended to address.
Unlike larger developers, SME builders 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 home building industry is committed to supporting building remediation efforts, having already committed around £6 billion towards addressing historic building safety issues. However, requiring developers to make additional contributions is particularly unfair given that product manufacturers and overseas developers have yet to make equivalent financial contributions.
Despite the findings of the Grenfell Tower Inquiry Phase 2 report highlighting the failings of all parties involved in the delivery of high-rise buildings in previous decades, including Government, building designers, product providers, and safety and accreditation bodies.
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 should 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 £2.5 billion of the existing £5.1 billion Building Safety Fund remains unallocated.
The survey highlights growing concerns that the levy will deter future investment in much-needed housing. More than two-thirds (69%) of SME builders 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. This is especially concerning given London's persistent underperformance against housing targets, with the Government's Standard Method identifying a need for around 85,000 homes a year, compared with just 32,680 [ST1] delivered in the latest figures.
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 £2.5 billion of the existing £5.1 billion 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. Government should pause, use the funding it already has, and properly assess the impact before pressing ahead.”