The Building Safety Levy will cost eight times more in London than County Durham
The new Building Safety Levy, introduced to pay for historic fire safety defects, will make many new developments unviable, especially in London where they are needed most, says Mark Holloway
The introduction of the Building Safety Levy (BSL) marks a shift in how the government funds the remediation of historic building safety defects. Due to come into force from 1 October 2026, the levy will apply to new residential developments in England and has a goal of raising £3.4bn. It is expected to cost developers an average of around £3,000 per plot.
BSL rates are set by local authority area and regional variations are striking, ranging from £100.35 per square metre in Kensington and Chelsea to just £12.70 in County Durham. The rationale is that higher value areas can bear greater contributions, but this neglects the fact that development viability is very strongly influenced by locality. In high-value markets, developers may be able to absorb the levy through land value adjustments or sales revenues. In lower-value regions, even relatively modest additional costs can tip schemes into unviability and ultimately deepen regional disparities in housing delivery.
Regional rates aren’t the only feature of the BSL that could exacerbate regional imbalances. The BSL is payable per gross internal metre of floor area, and for apartment buildings, this includes all communal internal areas rather than just the saleable floor area. This has a disproportionate effect on the higher density schemes typically favoured in town and city centres, adding to an already challenging viability backdrop.
Traditionally, developers assess financial obligations during the planning phase, incorporating these costs into land acquisition and development appraisals from the outset. The BSL is an additional compliance process to manage, asses and budget for. It is policed through the building control regime rather than the planning system and the full BSL liability must be paid before any building control final certificate will be issued, so any disagreement or dispute could delay occupation of new homes.
The BSL places an additional burden on the very sector expected to deliver new homes at scale. From a policy perspective, funding historic remediation by imposing a levy on future development is certainly questionable. Critics argue it is unfair for developers to shoulder this burden while product manufacturers involved in the historic defects are not subject to similar levies. This is particularly true for SME developers, who may have never even constructed any buildings which are subject to remediation requirements.
Charge manufacturers instead
However, politically palatable alternatives for raising remediation funds are thin on the ground. Large corporate developers are already subject to an additional four per cent tax on profits and over 50 developers have signed voluntary self-remediation pledges to contribute a total of £3.3bn. Wouldn’t a levy on product manufacturers and developers based overseas, who were involved in the original defects but have so far largely escaped liability, mitigate some of the remaining impact?
The BSL is subject to some exemptions, including affordable housing, care homes, and a 50 per cent reduction for previously developed land. Whilst these exemptions broadly align with wider planning policy objectives, when coupled with other viability pressures, the BSL could still lead to a drop in the number of homes being delivered. After all, a large proportion of affordable housing is delivered through planning agreements entered into by for-profit developers, so if smaller numbers of open market homes are delivered, this may reduce delivery of affordable housing.
Ultimately, the BSL reflects a desire to ensure the costs of historic building safety failures are not borne solely by the taxpayer. However, the nature of the levy and its application raise important questions in an industry already grappling with viability pressures and ambitious housing delivery targets. The BSL, combined with other regulatory and market viability constraints, could push many more schemes past the point where developers and investors are willing to risk their capital.
Mark Holloway is partner in the developer team at national law firm Foot Anstey