LODGE: A Living Sector Update - Summer 2025

Levy the Playing Field – The challenges of the Building Safety Levy for the Living Sector

By Ashley Williams and Murron McKeiver

The Building Safety Act 2022 (“BSA”) introduced powers to impose a levy on new “relevant” residential buildings. The Building Safety Levy (“the Levy”) aims to extract £3.4 billion from residential developers in England over the next ten years to fund the remediation of building safety defects.

For developers, including those in the Living Sector, the Levy represents an unavoidable expense, as non-payment will lead to a failure to obtain a building control completion certificate, or rejection of a final certificate. Published Levy rates range from £100.35 per square metre in Kensington and Chelsea to £13-£16 per square metre in Burnley, Middlesbrough, North-east Lincolnshire and Pendle (circa. £6-£8 for previously developed land) and will be reviewed every three years. Developments on previously developed land, or 'brownfield' sites, will benefit from a 50% discount, applicable when 75% or more of the land within the planning permission boundary qualifies as previously developed land. The Levy was due to come into force in October 2025. However, subject to Parliamentary approval of the supporting draft regulations laid in parliament last week, the Levy is intended to apply from 1 October 2026. The Government previously announced its intention to delay the Levy until October 2026, it its technical consultation response, released in March 2025. This postponement is intended to allow local government, the Building Safety Regulator and Registered Building Control approvers additional time to prepare for the Levy, and to enable housing developers to incorporate its cost into their financial planning.

How will the levy affect developments in the Living Sector?

Arguably disproportionate rates for communal spaces

The Levy charge is calculated by a Gross Internal Area (“GIA”) measurement of the floorspace. The Levy is calculated by multiplying the total floorspace by the relevant rate, following the methodology used for the Community Infrastructure Levy at the planning stage. This method of calculation could disproportionately impact developers with large communal areas in their buildings (for instance, flats, Build to Rent (“BTR”) or Purpose Built Student Accommodation (“PBSA”) properties). As these communal areas are included in the Levy, but do not provide any direct profit to the developer in themselves, the developer cannot specifically recover from that space to reimburse the Levy. This risks negatively impacting the design of urban developments in this sector as integrated social living by way of communal spaces is disincentivised.

Not all profit models are treated equally

The BSA provides that the Levy will apply to all new “relevant buildings” in England which require building control approval, regardless of height. Relevant buildings are defined as buildings consisting of or containing:

One or more dwellings; or
Other accommodation including, “temporary accommodation, for example in a hotel or hospital” (s58 BSA).
This includes, amongst other types of developments, privately-owned houses and flats, BTR schemes, purpose-built student accommodation (“PBSA”) and retirement housing.

Exclusions to the Levy are limited to internal refurbishments, PBSAs with fewer than 30 bedspaces or developments of ten units or less, affordable rented and intermediate housing provided to eligible households whose needs are not met by the market and community facilities such as NHS hospitals and hotels. The above definition and exclusions have sparked criticism and lobbying efforts, particularly for certain types of developments like BTR and PBSA developments to be exempted, alongside discontent over the exclusion of hotels from the Levy. In Scotland, similar objections have been raised to its equivalent Levy Bill. The Scottish Government has taken the same line as the Government has for England; however, it has stated that it will continue to explore the merits and benefits with stakeholders as their Bill develops.

Arguably disproportionate rates for communal spaces

The Levy charge is calculated by a Gross Internal Area (“GIA”) measurement of the floorspace. The Levy is calculated by multiplying the total floorspace by the relevant rate, following the methodology used for the Community Infrastructure Levy at the planning stage. This method of calculation could disproportionately impact developers with large communal areas in their buildings (for instance, flats, Build to Rent (“BTR”) or Purpose Built Student Accommodation (“PBSA”) properties). As these communal areas are included in the Levy, but do not provide any direct profit to the developer in themselves, the developer cannot specifically recover from that space to reimburse the Levy. This risks negatively impacting the design of urban developments in this sector as integrated social living by way of communal spaces is disincentivised.

Not all profit models are treated equally

The BSA provides that the Levy will apply to all new “relevant buildings” in England which require building control approval, regardless of height. Relevant buildings are defined as buildings consisting of or containing:

One or more dwellings; or
Other accommodation including, “temporary accommodation, for example in a hotel or hospital” (s58 BSA).
This includes, amongst other types of developments, privately-owned houses and flats, BTR schemes, purpose-built student accommodation (“PBSA”) and retirement housing.

Exclusions to the Levy are limited to internal refurbishments, PBSAs with fewer than 30 bedspaces or developments of ten units or less, affordable rented and intermediate housing provided to eligible households whose needs are not met by the market and community facilities such as NHS hospitals and hotels. The above definition and exclusions have sparked criticism and lobbying efforts, particularly for certain types of developments like BTR and PBSA developments to be exempted, alongside discontent over the exclusion of hotels from the Levy. In Scotland, similar objections have been raised to its equivalent Levy Bill. The Scottish Government has taken the same line as the Government has for England; however, it has stated that it will continue to explore the merits and benefits with stakeholders as their Bill develops.

Build-to-Rent and Purpose-Built Student Accommodation

During consultation, opponents to BTR’s and PBSA’s inclusion in the Levy contended that these developers profit over extended periods. This contrasts with developers in the for-sale market who experience immediate gains from property sales. Imposing the Levy on BTR’s and PBSA’s could exert disproportionate financial strain, potentially rendering some sites unfeasible for development and giving the for-sale market an advantage. The Government in its response to the consultation findings dated March 2025, considered the differing profit models between BTR, PBSA and the for-sale market. However, it maintains that both BTR and PBSA are lucrative segments of the housing sector. As such, excluding them from the Levy would unfairly tilt the competitive landscape, as these developments vie for land alongside for-sale projects. The Levy, according to the Government, remains applicable to BTR and PBSA to ensure a level playing field across the industry. Certain responses to the consultation agreed with the Government that BTR or PBSA should not be exempted on the basis that the developments will be rented at market rates which would provide return so as not to impact the scheme’s viability. However, BTR and PBSA make a profit over time, and (unlike housebuilding where the profit occurs much earlier), developers retain a keen interest through ownership or potential disposal on financial institutions or investors. Therefore, developers would take an upfront hit to cover the levy putting this type of development at a disadvantage to the more classic housebuilding models where a profit can be realised upon completion, or in some cases even before completion, which could have more of a slowing effect on BTR or PBSA developments.

Unlike housebuilding, BTR and PBSA owners have also not sought financial assistance from the Government or from residents in rectifying any building safety defects. This profit model is then further disadvantaged in the sense that the Building Safety Fund is designed to support leaseholders. There is no provision in the Building Safety Guidance for new applications for owners or occupiers of rented buildings such as BTR and PBSAs. The Government website for the Cladding Safety Scheme states explicitly that it does not cover non-residential buildings such as hotels, and that this likely includes PBSA and BTR schemes unless applying from the social sector under the financial viability route. Therefore, BTR and PBSA are effectively required to contribute to money being raised by the Government to remediate cladding and building safety issues by way of the Levy, without being eligible to receive financial support for the same works in return by way of the Building Safety Fund or Cladding Safety Scheme. Including the BTR within the ambit of the Levy creates a risk of directly impacting other housing policies, such as the Government’s announcement in December 2020 that it would focus on housing supply in 20 key cities. The British Property Federation noted in their response to the consultation that 80% of BTR delivery is in these key areas. The undersupply of PBSA in turn impacts the supply of affordable homes in university cities.

During consultation, opponents to BTR’s and PBSA’s inclusion in the Levy contended that these developers profit over extended periods. This contrasts with developers in the for-sale market who experience immediate gains from property sales. Imposing the Levy on BTR’s and PBSA’s could exert disproportionate financial strain, potentially rendering some sites unfeasible for development and giving the for-sale market an advantage. The Government in its response to the consultation findings dated March 2025, considered the differing profit models between BTR, PBSA and the for-sale market. However, it maintains that both BTR and PBSA are lucrative segments of the housing sector. As such, excluding them from the Levy would unfairly tilt the competitive landscape, as these developments vie for land alongside for-sale projects. The Levy, according to the Government, remains applicable to BTR and PBSA to ensure a level playing field across the industry. Certain responses to the consultation agreed with the Government that BTR or PBSA should not be exempted on the basis that the developments will be rented at market rates which would provide return so as not to impact the scheme’s viability. However, BTR and PBSA make a profit over time, and (unlike housebuilding where the profit occurs much earlier), developers retain a keen interest through ownership or potential disposal on financial institutions or investors. Therefore, developers would take an upfront hit to cover the levy putting this type of development at a disadvantage to the more classic housebuilding models where a profit can be realised upon completion, or in some cases even before completion, which could have more of a slowing effect on BTR or PBSA developments.

Unlike housebuilding, BTR and PBSA owners have also not sought financial assistance from the Government or from residents in rectifying any building safety defects. This profit model is then further disadvantaged in the sense that the Building Safety Fund is designed to support leaseholders. There is no provision in the Building Safety Guidance for new applications for owners or occupiers of rented buildings such as BTR and PBSAs. The Government website for the Cladding Safety Scheme states explicitly that it does not cover non-residential buildings such as hotels, and that this likely includes PBSA and BTR schemes unless applying from the social sector under the financial viability route. Therefore, BTR and PBSA are effectively required to contribute to money being raised by the Government to remediate cladding and building safety issues by way of the Levy, without being eligible to receive financial support for the same works in return by way of the Building Safety Fund or Cladding Safety Scheme. Including the BTR within the ambit of the Levy creates a risk of directly impacting other housing policies, such as the Government’s announcement in December 2020 that it would focus on housing supply in 20 key cities. The British Property Federation noted in their response to the consultation that 80% of BTR delivery is in these key areas. The undersupply of PBSA in turn impacts the supply of affordable homes in university cities.

Hotels and Private Hospitals otels and Private Hospitals

The keen eyed will spot that hotels are included in the s.58 definition of a “relevant building” under the Building Safety Act 2022. Yet, the Government has excluded hotels from the Levy. Of the consultation respondents who were developers, 33% felt that revenue-generating commercial buildings like hotels (and buildings such as non-NHS hospitals) should be included in the Levy as otherwise they will gain an unfair advantage over BTR and PBSA developers who they compete for land with. The Government acknowledged that the majority of responses to the consultation were in support of hotels being excluded from the Levy, particularly on the basis that hotels boost tourism, and communal accommodations meet social needs. The Government intends the Levy to focus on residential developments, and thereby excludes hotels and non-NHS hospitals on the basis they have a primarily commercial function and nature.

Conclusions on the Impact of the Levy on the Living Sector

The Levy is set to have a potentially substantial effect on the Living Sector, particularly for developments like BTR and PBSA. Given the scale at which these projects are typically constructed, they are likely to face a significant increase in costs, particularly because the Levy applies to the entire GIA, including communal spaces as discussed above. The Home Builders Federation (“HBF”) has voiced strong opposition to the Levy, describing it as a "nakedly anti-development new tax" that could impede growth in housing supply. In correspondence with Rachel Reeves, the HBF urged the Government to reconsider the Levy, emphasising the challenges it presents to residential developers already facing numerous pressures such as the complicated Gateway approval process and a shortage of skilled construction workers. These existing issues contributed to reports of the fastest downturn in the construction industry since May 2020. The true impact of the Levy on residential development is yet to be determined. Its effects will likely be measured by how closely the Government achieves its ambitious target of creating 1.5 million new homes by 2029. As developers manoeuvre through this challenging environment, the Levy is an additional factor shaping the future of housing development in England.

How long will the levy be in place?

The Government has indicated that the Levy will remain in place for at least the next decade following its implementation. Nonetheless, it is anticipated to represent only a minor fraction (4%) of the revenue generated by the Community Infrastructure Levy over the same period. The delayed introduction of the Levy will offer some temporary relief to many who are already still grappling with the impact of the BSA, and the increased costs and regulations. Levy rates will be reviewed every three years unless a more frequent review process is deemed necessary.

Next steps

The Levy requires secondary legislation to give it effect. Accordingly, draft regulations (The Building Safety Levy (England) Regulations 2025) were laid in Parliament on 10 July 2025, subject to Parliamentary debate and approval, these will come into force on 1 October 2026. Developments will be closely monitored.