With the publication of the Governments technical consultation response to the proposed Building Safety Levy in March, developers and investors are considering its impact on project viability.
While the sector may be breathing a collective sigh of relief that the levy will now come into effect in Autumn 2026 (rather than a year earlier), concerns remain over the potential impact on housing delivery, particularly in the build to rent (BTR) and purpose-built student accommodation (PBSA) sectors.
What is the Building Safety Levy?
The Building Safety Levy is a charge introduced by the UK Government aimed at ensuring developers contribute to the remediation of unsafe buildings, particularly those affected by historic fire safety defects like cladding, following the Grenfell Tower disaster. It will apply to new residential developments comprising 10 dwellings or more which require building control approval. The Government's intention is to make the construction industry financially accountable for past failures without placing the burden on leaseholders or taxpayers.
There are several exclusions to the Levy (including, among others, affordable housing, hospitals and care homes) but the majority of residential developments will be caught.
The Levy will be calculated based on the Gross Internal Area (GIA) of qualifying projects, with rates set by central government for each local authority area. It will be collected by local authorities, who will remit funds quarterly to the Government for remediation purposes. The Levy will not be indexed but will be reviewed every three years. A 50% discount will apply to developments on brownfield sites.
Developers failing to pay the Levy will have their building control completion certificates withheld, preventing the sale or occupation of affected dwellings.
Challenging landscape
The Levy adds further complexity to the already challenging landscape for BTR and PBSA developments. Alongside escalating construction costs, the loss of multiple dwelling relief, and the financial strain of compliance with new safety regulations, the levy exacerbates viability concerns. With rising finance costs and the added burden of Gateway compliance, developers must now navigate a significantly more challenging environment, requiring careful consideration of both regulatory and market dynamics.
Government consultations: BTR sector feedback
BTR stakeholders raised concerns that the large communal areas integral to multi-family BTR developments would unfairly inflate the Levy charged on such schemes. Some suggested excluding these areas or calculating the Levy on a 'per-unit' basis, but the Government rejected these ideas, citing GIA's established use and administrative simplicity. Further, charging 'per-unit' would mean small flats could be (unfairly) subject to the same charge as large multi-bedroom houses. They also argued that communal areas are for the use and benefit of occupants so should not be excluded.
In response to calls to exclude BTR from the Levy due to viability concerns (as BTR profits accrue more slowly over time), the Government argued that BTR schemes are still profit-making and excluding them would give the sector an unfair competitive advantage over build-for-sale schemes which compete for land in the same way.
Implications for PBSA
PBSA developments are generally within the Levy's scope, though those with fewer than 30 bedspaces are exempt. The Levy could raise costs, especially in high-expense areas, making new projects less viable. Developer's may shift to focus on premium offerings to offset increased costs, which could worsen student housing shortages and affordability issues.
The inclusion of communal areas in GIA calculations, which are central to PBSA developments, is a point of contention, similar to the BTR sector's concerns. Whilst the Government argues these spaces contribute to the building's value, industry stakeholders believe they should be excluded, as they do not generate income.
Financial, operational and regulatory compliance implications for BTR and PBSA schemes
The Levy's introduction will affect BTR and PBSA schemes in several ways:
- Cash flow challenges: upfront Levy payments may impact the financial viability of BTR or PBSA schemes, which rely on long-term rental income.
- Design considerations: Levy calculations based on GIA could discourage the inclusion of communal and amenity spaces, which are integral to BTR and PBSA offerings.
- Market impact: the Levy could lead to a potential reduction in BTR and PBSA project launches, affecting housing supply in the rental sector.
- Regulatory compliance: developers will be required to submit detailed information at the building control application stage to facilitate Levy calculations.
- Exemptions and reliefs: while certain developments are exempt, BTR and PBSA schemes currently do not benefit from specific exemptions and may be disadvantaged in a competitive land market.
- Transitional provisions: projects commencing before the Levy’s implementation date are likely to avoid it, but delays to these projects (e.g. time taken to obtain planning permission) may bring them into scope.
Next steps?
To mitigate the Levy's impact, BTR and PBSA developers and stakeholders may consider the following:
- Financial planning: incorporating the Levy costs into early-stage financial models and exploring phased development approaches to manage cash flow (noting that the Levy for the entire scheme remains payable upon practical completion of the first phase).
- Design optimisation: balancing the provision of communal amenities with the financial implications of increased GIA against the added value that BTR and PBSA schemes offer residents/students, and potentially rents they can charge once occupied as a result.
- Engagement: maintaining communication with local authorities to understand Levy calculations and potential reliefs.
- Advocacy and collaboration: collaborate with industry bodies to advocate for BTR/PBSA-specific considerations in Levy implementation.
Balancing safety and viability
While the Levy aims to address critical safety concerns in existing buildings, its implementation must consider the unique characteristics of BTR and PBSA developments to avoid unintended consequences on housing supply.
The Government’s plan to accelerate the pace of remediation is clearly an important and necessary course of action, but it must also consider the potential detriment this may cause to housing delivery to ensure solving one issue doesn’t fan the flames of another.
Continued engagement between the Government, developers, and industry stakeholders is essential to refine the Levy framework and ensure it supports both safety objectives and housing market stability.
