With the Building Safety Levy due to apply from 1 October 2026, the housebuilding industry is facing a difficult contradiction.
Developers are rushing to submit applications before the deadline, as we discussed in our recent article on the surge in Gateway 2 applications. At the same time, housebuilders, contractors and property bodies are warning that the levy could make more schemes unviable, delay housing delivery and reduce affordable housing contributions.
Both things can be true.
Some developers are trying to beat the new cost into the system, while others are looking at their appraisals and asking whether the project still works at all.
What is the Building Safety Levy?
In straightforward terms, the Building Safety Levy is a charge on qualifying residential development. It applies to building control applications for new homes or student accommodation submitted on or after 1 October 2026, unless an exemption applies.
The Government expects the levy to raise approximately £3.4 billion over ten years towards post-Grenfell building remediation.
The charge is calculated by reference to the new residential floor area and varies according to location and land type. The difference between areas can be substantial. Construction News reports an example rate of £100.35 per square metre for greenfield schemes in Kensington and Chelsea, compared with £6.35 per square metre for brownfield development in County Durham.
The levy does not apply to every project. Schemes with fewer than 10 dwellings or fewer than 30 student spaces are outside its scope. Non-profit housing association schemes and certain public-service-led developments are also exempt, subject to the detailed rules.
For projects that do fall within scope, the timing is important. Industry reporting indicates that the levy must be paid before a building control completion certificate can be issued. That creates a cash-flow issue: the project may have incurred its major construction costs before the levy becomes payable, but the final certificate and practical completion can still depend on payment.
Our earlier Building Safety Levy quick-start guide covers the basic preparation points. The question now is whether some schemes can absorb the charge at all.
Why the industry is warning about viability
A summer poll of more than 100 small and medium-sized housebuilders by the Home Builders Federation found that nine in ten believed the levy would make schemes unviable.
That is a serious warning, particularly because SME developers often work with narrower margins and less ability to spread unexpected costs across a large portfolio.
The HBF has also reported that the cost of building a typical home has risen by more than £75,000 over five years. The levy is therefore arriving after a prolonged period of higher labour, materials, finance, energy, planning and compliance costs.
Build UK chief executive Suzannah Nichol described the cumulative burden of taxes, levies and obligations as a significant contributor to projects becoming unviable, delayed or not delivered. Her criticism is that the Building Safety Levy may feel particularly unfair to businesses that have never built high-rise buildings and have not caused the historic defects the levy is intended to help address.
The HBF has called for the Government to pause the levy and reassess whether it remains necessary. Its chief executive Neil Jefferson warned that SME developers are being forced to rethink investment decisions, delay sites and reduce output.
The Construction Products Association has made a similar point. Noble Francis’s assessment is practical: each individual cost may be manageable, but all of them together can push a site past its viability threshold, especially in lower-value parts of the country.
That list already includes:
- Residential Property Developer Tax
- Biodiversity net gain requirements
- Water and nutrient neutrality measures
- Section 106 obligations
- Community Infrastructure Levy
- Building regulations changes
- The Remediation Acceleration Plan
- Landfill tax reforms
- Increases in National Insurance contributions
The Building Safety Levy will be followed by further cost pressure from the Future Homes and Buildings Standards, expected in March 2027.
A decision cliff for Essex, Kent and London projects
For developers across Essex, Kent and London, the next few weeks represent a genuine decision point.
A project that is submitted before 1 October may avoid the new charge, depending on the application and the detailed rules. A project submitted afterwards may carry a new cost that was not included in the original land purchase, planning or finance assumptions.
That does not mean every developer should rush an incomplete application. A poorly prepared application can create its own delays and costs, and the treatment of rejected or resubmitted applications needs to be considered carefully with the relevant professional advisers.
It does mean that levy exposure should be modelled now, before committing further capital or agreeing a construction strategy.
In London, even a modest increase in the rate per square metre can become material on a large apartment scheme. In parts of Essex and Kent, where selling prices may not provide the same margin as prime London, a smaller absolute charge can still make the difference between an acceptable return and a stalled site.
The Government’s own consultation response acknowledges that the levy may have a small impact on housing supply, particularly where sites are already close to the viability threshold. The industry’s concern is that many more sites may be close to that threshold than the Government’s wording suggests.
The wider market is already under pressure
The levy is not being introduced into a strong and confident construction market.
According to Construction News reporting on BTG Red Flag Alert data, 7,458 construction businesses were in critical financial distress in the second quarter of 2026, a 6.6% increase year on year. A further 101,568 businesses were in significant financial distress.
The S&P Global UK Construction PMI stood at 44.3 in August, where any result below 50 indicates contraction. It was the sector’s twentieth consecutive month of shrinking output. Residential work experienced the sharpest decline in the latest figures.
This is why the cumulative-cost argument matters. A developer may be able to absorb one extra charge when sales are strong, finance is available and labour capacity is secure. It becomes much harder when buyers are cautious, lenders are demanding, planning is slow and contractors are already managing tight cash flow.
The practical result could be fewer starts, delayed procurement, reduced Section 106 or affordable housing contributions, or alternative uses being considered for sites that no longer work as residential schemes.
What the levy means for contractors and trades
Contractors do not normally pay a developer’s levy directly, but they will feel the consequences when a project’s viability weakens.
That can appear as:
- Cancelled or postponed tenders
- Delayed mobilisation
- Requests to reduce prices
- More aggressive payment negotiations
- Unpaid applications and growing aged debt
- Retention disputes
- Pressure to accept unfavourable contract amendments
- Under-utilised labour and plant capacity
A contractor may win a tender, only to discover that the employer’s funding is not fully committed or that the project depends on a viability review after planning approval.
This is the point at which commercial discipline matters more than simply filling the order book. Credit-check customers before accepting substantial work. Ask whether planning, funding and building control requirements are in place. Be cautious about advance procurement where the start date is uncertain, and check your rights around suspension, extensions of time and recovery of prolongation costs.
Contractors should also review whether their Construction Contractor Insurance reflects their realistic forward workload. A fall in turnover may affect the appropriate premium basis, but this should be discussed with your broker rather than assumed. The insurer still needs an accurate picture of the work being undertaken, contract values, project types and any design or higher-risk building responsibilities.
For businesses arranging Business Insurance Essex or Business Insurance London, this is a useful time to review the whole risk profile rather than focusing only on the renewal price. General Contractor Liability Insurance should reflect the actual scope of work, including work on occupied buildings, higher-risk structures and projects involving specialist subcontractors.
Developers should also consider how viability studies, planning risk and levy liabilities interact with professional indemnity and directors’ and officers’ exposures. If a project is challenged because assumptions were incomplete or a decision was made without adequate financial analysis, the resulting dispute may involve more than one professional or company director.
Credit management and, where suitable, trade credit insurance should also be discussed as the risk of delayed payment increases.
A practical checklist before 1 October
For housebuilders and developers
- Model the Building Safety Levy into every relevant viability appraisal.
- Confirm the applicable rate for the local authority and land type.
- Check whether the project qualifies for an exemption.
- Take professional advice on the timing and completeness of any pre-1 October application.
- Consider the levy’s impact on affordable housing, Section 106 and CIL commitments.
- Discuss the revised appraisal with lenders before further capital is committed.
- Allow for the payment point before the building control completion certificate.
- Keep remediation funding routes and future regulatory costs under review.
- Revisit land values and construction budgets where the margin has materially reduced.
For contractors and trades
- Review the credit position of developers and main contractors before tender acceptance.
- Ask whether planning, building control, levy treatment and funding are sufficiently certain.
- Avoid purchasing significant materials purely on the basis of an unconfirmed start date.
- Check clauses dealing with delay, liquidated damages, suspension and termination.
- Keep retention exposure and payment applications under close review.
- Confirm that bonds, guarantees and insurance certificates remain valid for the revised programme.
- Align declared turnover and project values with the realistic forward workload.
- Review Construction Contractor Insurance and General Contractor Liability Insurance before taking on unfamiliar work.
- Keep detailed records of design information, approval delays, variations and employer instructions.
The industry is right to ask whether the Building Safety Levy is being introduced at the wrong point in the cycle. The need to address historic building safety defects is clear, but the funding mechanism cannot be considered separately from the financial condition of the businesses expected to deliver new homes.
For now, the most sensible approach is to treat 1 October as a hard planning deadline, not as a reason to make rushed decisions. Developers need to understand the full cost before committing to a site. Contractors need to test whether the work in front of them is properly funded and insurable.
Moyak Insurance Services supports businesses across Essex, Kent and London with an individual approach to commercial and construction insurance. Contact Moyak Insurance Services to review your cover, turnover, liability requirements and changing project pipeline.
This article provides general information only. It is not legal, tax, regulatory, contractual or financial advice. The Building Safety Levy rules, exemptions and application treatment should be confirmed with the relevant professional advisers. Insurance cover depends on the policy wording, exclusions, limits and facts of each individual case.
Frequently asked questions
When does the Building Safety Levy apply?
The levy applies to qualifying building control applications for homes or student accommodation submitted on or after 1 October 2026, unless an exemption applies.
How much is the Building Safety Levy?
The charge is calculated per square metre and varies according to location and land type. Reported examples include £100.35 per square metre for greenfield schemes in Kensington and Chelsea and £6.35 per square metre for brownfield schemes in County Durham.
Which schemes are outside the levy?
Schemes with fewer than 10 dwellings or fewer than 30 student spaces are outside scope. Non-profit housing association schemes and certain public-service-led developments are also exempt, subject to the detailed rules.
When does the levy have to be paid?
Industry reporting indicates that the levy must be paid before a building control completion certificate can be issued. Developers should therefore include the liability in cash-flow planning, not only in the initial development appraisal.
Why could the levy make schemes unviable?
The levy is being added to existing costs such as land, labour, materials, finance, Section 106, CIL, biodiversity net gain, building regulation changes and infrastructure obligations. On schemes with narrow margins, the combined effect may push the project beyond its viability threshold.
What should contractors review?
Contractors should review customer credit exposure, funding certainty, payment terms, retention risk, suspension and delay rights, bonds and guarantees, as well as their Construction Contractor Insurance and General Contractor Liability Insurance.
Could the levy affect affordable housing?
Industry bodies have warned that if private development viability deteriorates, developers may seek to reduce affordable housing contributions or consider alternative uses for sites. The actual effect will depend on the project appraisal, planning obligations and negotiations with the relevant authorities.