IN Brief:
- HBF and Quantum Development Finance found 91% of surveyed SME builders expect the levy to affect project viability.
- Thirty-six per cent have already delayed, redesigned, or cancelled schemes, while 69% expect to reduce investment in new opportunities.
- The Building Safety Levy begins on 1 October 2026 and will apply to qualifying residential development in England.
The Home Builders Federation has warned that the incoming Building Safety Levy could make more housing developments financially unviable, after research with Quantum Development Finance found that 91% of surveyed SME housebuilders expect the charge to affect project viability.
The levy comes into force in England on 1 October 2026. It will apply to qualifying building-control applications for major residential development and purpose-built student accommodation, with payment required before completion or occupation.
Developments below the threshold of 10 homes or 30 student bedspaces are exempt, alongside specified categories including certain affordable, supported, healthcare, and care accommodation. Local authorities will act as collecting bodies.
The HBF survey suggests the effect is already being felt before the first payment becomes due. Thirty-six per cent of SME respondents said they had delayed, redesigned, or cancelled schemes in anticipation of the levy, while 69% expect it to reduce their appetite for investing in new development opportunities.
The response was strongest in London, where 86.7% said the levy would make them less likely to invest in new sites. High levels of concern were also recorded across the West Midlands, South West, East Midlands, and Yorkshire.
For smaller builders, the levy arrives on top of costs already concentrated across comparatively small numbers of units. Land, planning, finance, infrastructure contributions, construction inflation, and regulatory requirements all have to be absorbed within the same development appraisal, leaving less room to spread new charges than is available to larger national portfolios.
HBF estimates that the cost of delivering a typical new home has increased by around £76,000 over the past five years. It attributes £2,320 of that rise to the Building Safety Levy, alongside wider increases in construction costs, planning requirements, finance, and other obligations.
The practical issue is residual land value. Development appraisals generally work backwards from expected sales income, deducting construction, finance, professional fees, infrastructure, policy contributions, contingency, and an acceptable developer return. When another cost is added late in the process, it usually has to be absorbed by land value, margin, specification, or the number and mix of homes.
Sites already purchased or tied up under earlier assumptions have less room for adjustment. If land terms cannot be renegotiated and sales values do not support higher prices, developers may redesign a scheme, delay it in the hope that market conditions improve, or decide that the risk-adjusted return no longer justifies construction.
That sensitivity is greater for SMEs because fewer projects are available to offset a poorly performing development. A single delayed or marginal scheme can tie up a substantial proportion of the company’s capital and borrowing capacity, limiting its ability to acquire the next site.
HBF chief executive Neil Jefferson said the continuing “layering on of costs” is making a growing proportion of development opportunities unviable. The organisation is calling for the Government to pause implementation and carry out a fuller assessment of the levy’s effect on private and affordable housing delivery.
The policy objective is different. The Building Safety Levy is intended to make the residential development sector contribute further towards the cost of remediating historic building-safety defects, while protecting leaseholders from remediation bills. Government regulations therefore spread the charge across qualifying residential development rather than restricting it to high-rise schemes.
HBF argues that this creates a particular problem for smaller housebuilders that have never developed the types of tall residential buildings associated with many historic remediation failures. It also points to around £6bn already committed by the wider housebuilding sector through other remediation arrangements.
For construction teams, the levy is more than a later financial reconciliation. Its connection to building control means developers will have to identify chargeable and exempt floorspace correctly, calculate liability, and plan payment alongside completion and occupation procedures.
Mixed-tenure schemes may require particular care because affordable or otherwise exempt accommodation can sit within the same overall development as chargeable private homes. The allocation of floorspace and supporting records therefore needs to be resolved well before final certification.
The timing is awkward for a housebuilding market already struggling to increase output. Glenigan’s latest market data shows residential starts materially below last year’s levels even where contract awards have improved, while government policy continues to depend on a broader range of builders increasing delivery.
The levy will not make every project unviable. Its effect will depend on local sales values, land terms, construction costs, tenure, brownfield status, and the amount of margin already available within the appraisal. The HBF survey suggests those variables are already being recalculated across a large part of the SME market.
From 1 October, the argument moves from forecasts to live schemes. The useful measure will be how many qualifying developments proceed unchanged, and how many are redesigned, delayed, or removed from smaller builders’ pipelines once the levy is embedded in actual project accounts.
