UK Government’s Building Safety Levy Could Hamper New Housing Development

In England, the UK government‘s plans to implement a building safety levy on certain new residential developments under the Building Safety Act 2022 could have adverse effects on the creation of much-needed new housing, according to an expert. The proposed levy, aimed at funding remediation works on existing residential buildings with safety defects, has stirred concerns about the limited exemptions set aside for different types of development.

The Department for Levelling-Up, Housing and Communities recently published its response to the feedback received during a consultation period and confirmed that the levy would apply not only to most newly-built ‘for sale’ housing, but also to build-to-rent (BTR) properties, purpose-built student accommodation (PBSA), and private retirement housing.

Matthew Harris, a partner at Pinsent Masons, expressed disappointment at the government’s decision not to exempt BTR, PBSA, and private retirement housing from the levy. Harris raised concerns about the potentially negative impact on housing supply and costs, particularly in the multi-family BTR, later living accommodation, and PBSA sectors, where returns are generated over a longer period.

While the government acknowledged the potential impact on scheme viability, it plans to introduce various measures to address this, including a differential levy rate based on house prices in local authority areas and a discounted rate for developments on brownfield sites. The levy would not be charged on developments with less than 10 units. Over time, the government expects the cost of the levy to influence developers’ land acquisition decisions.

Under the government’s proposal, the levy would be based on a per square meter charge, subject to further analysis on how floorspace would be measured and rates set. Harris welcomed this shift to a floor area-based charge, as it would prevent penalizing developments with one- and two-bedroom units, which are in high demand. However, clarity is needed regarding the measurement regime and the specifics of what will be included in the calculation.

Developers would be responsible for paying the levy to the relevant local planning authority, which, in turn, would pass on the funds to the central government on a quarterly basis.