New building tax will make housing sites unviable England’s small builders warn
Key Points
- More than nine in ten SME home builders say the Building Safety Levy will make developments financially unviable.
- The levy comes into force on 1 October and adds £2,320 to the cost of building a typical new home.
- More than a third of SME builders have already delayed, redesigned or cancelled schemes ahead of the charge.
- Almost seven in ten say the levy makes them less likely to invest in new development, rising to 86.7% in London.
- The Home Builders Federation wants the government to pause the levy while more than £2.5 billion of the existing Building Safety Fund sits unallocated.
More than nine in ten (91%) SME home builders in England say the Building Safety Levy will make developments financially unviable, according to new research from the Home Builders Federation and Quantum Development Finance.
The levy comes into force on 1 October, and 36% of the small and medium-sized builders surveyed have already delayed, redesigned or cancelled schemes in anticipation of it.
HBF’s new Viability Crunch report puts the cost of building a typical new home £76,000 higher than five years ago, of which the Building Safety Levy accounts for £2,320. The rest comes from other taxes, levies, policy requirements and inflation.
Ministers ruled out an exemption for medium-sized developments, which means the charge applies to builders who have never put up a high-rise block and played no part in the historic safety failures the levy addresses.
SME builders must also pay when the first home on a site completes rather than on sale, hitting cash flow at one of the most financially constrained points of a project.
The industry has already committed around £6 billion towards remediating historic building safety issues, while product manufacturers and overseas developers have yet to make equivalent contributions.
The Grenfell Tower Inquiry Phase 2 report identified failings across government, building designers, product providers and safety and accreditation bodies.
Investment plans and regional impact
Almost seven in ten (69%) SME builders said the levy makes them less likely to invest in new development opportunities, with a further 9% saying it was too early to judge.
That figure reaches 86.7% in London, where the government’s Standard Method identifies a need for around 85,000 homes a year against the 32,680 delivered in the latest figures. Concern runs at 85.7% in the West Midlands, 82% in the South West, 78.9% in the East Midlands and 76.9% in Yorkshire.
“The new levy, compounded by other rising costs, tighter margins and challenging market conditions, will make even more developments unviable,” said Neil Jefferson, Chief Executive of the Home Builders Federation.
“SME developers in particular are being forced to rethink investment decisions, delay sites and reduce output as costs continue to increase.”
Jefferson wants the government to pause the levy and reassess whether it remains necessary, pointing to more than £2.5 billion of the £5.1 billion Building Safety Fund that remains unallocated.
This was echoed by Richard Hemmings, Managing Director of Quantum Development Finance.
“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,” said Hemmings.
