Legal experts have warned about the “unintended consequences” of the Building Safety Levy, a new tax on residential schemes that comes into force today.
The levy is part of the Building Safety Act 2022 and aims to raise an estimated £3.4bn toward the government‘’s historical building safety and cladding remediation programmes. It applies to major developments of more than 10 dwellings or 30 student beds.
Forsters commercial real estate partner Andrew McEwan questioned whether the levy would raise the intended revenues “without further constraining an already limited development pipeline”.
“If projects are delayed or no longer stack up financially, this loss of development pipeline will end up reducing the revenues generated by the levy as well as hampering crucial housing delivery.”
McEwan said some schemes may need to revisit viability assessments due to the levy being triggered at building control rather than planning consent.
Hampering crucial housing delivery
He said: “If projects are delayed or no longer stack up financially, this loss of development pipeline will end up reducing the revenues generated by the levy as well as hampering crucial housing delivery. Over time, the market will need to price the levy into valuations, but that cannot retrospectively change the economics of sites already acquired.”
Mayer Brown construction litigation partner James Morris said the principal concern over the levy was “whether another cost on residential development comes at the wrong time for an industry already facing significant pressure on multiple fronts.”
He said: “The challenge is whether the levy will strike the delicate balance between assisting with funding without undermining housing delivery.”
Call for emergency exemption for SMEs
Developer Pocket Living, meanwhile, called for an emergency exemption from the levy, “especially for SMEs”, until the current housing delivery crisis is over.
Chief executive Paul Rickard said: “This is a tax payable towards the end of the scheme, but before a home is sold and a developer is in receipt of funds – creating another liability with no cash having come in with which to pay it.”
Legal firm Tees predicted the levy would have a wider impact on development projects. In a briefing released this week, it said: “While aimed at residential development, its effects will inevitably be felt across the commercial property sector due to the continued growth of mixed-use developments, urban regeneration projects and residential-led repurposing of commercial assets.”
