Developers warn cladding levy could worsen housing emergency

The Building Safety Levy (Scotland) Bill, which is currently going through Holyrood, will bring in a fee to be paid by a developer when a new home is completed. The money would then go towards fixing buildings with unsafe cladding.

The levy would apply when a completion certificate is accepted, with the rate to be set by ministers later.

It would cover new and converted buildings but exempt affordable housing, social housing and any building on a Scottish island.

The legislation aims to raise about £30 million a year for the Scottish Government's cladding remediation programme set up in the wake of the 2017 Grenfell Tower fire in London that killed 72 people.

The 23-storey tower's cladding contributed to the rapid spread of the fire.

There are 1,450 residential buildings in Scotland estimated to need remediation work because of unsafe cladding, including about 250 high-rises.

The programme could cost £1.7 billion to £3.1 billion over a 15-year period.

72 people died in the Grenfell Tower tragedy

While the Scottish Government argues the measure is necessary to ensure costs do not fall on homeowners or taxpayers, developers and property bodies are set to tell the Scottish Parliament's Finance and Public Administration Committee the charge could be catastrophic for the sector.

Homes for Scotland (HFS), which represents homebuilders and whose members deliver the "vast majority" of homes built to rent or buy across Scotland, has estimated the levy is "expected to increase the cost of building a new home by around £3,500 per home on average."

The group said its members already contribute to cladding remediation through the UK-wide Residential Property Developers Tax which should "yield approximately £200 million in Barnett consequentials for Scotland".

They also said members had taken "voluntary self-remediation actions" which were estimated to be around £400 million in value.

"Introducing a third financial obligation through a new levy imposes a 'triple dip' on developers and threatens the viability of housebuilding businesses at a time when Scotland is facing a housing emergency," they added.

Meanwhile, Miller Homes told MSPs the levy "could reduce the number of new homes being delivered due to the lack of viability" which would in turn "increase the market price for the new homes that are available."

It added that developers may "increasingly prioritise higher-value sites and postpone or avoid investment in rural lower-value, and marginal urban areas, where the costs of the levy would render development unviable, with particular impacts for starter or first-time buyer housing supply."

This, they warned, could "exacerbate inequalities and reduce housing supply in the areas it is most needed."

They said the levy would "punish Scottish developers for the poor building control standards, poor workmanship and lack of regulation within the cladding industry."

They also noted that affordable housing accounted for a much larger share of the Scottish market than south of the border. Affordable housing completions represent "44% of the market compared to 19% in England."

Miller Homes said that because of this, the exemption for affordable housing "places a disproportionate burden on private homes" in Scotland.

It also said that many affordable homes are "linked to private home developments" through Section 75 agreements, which require developers to include affordable homes.

They said if the levy makes some private developments too expensive to build, those projects may not go ahead "reducing the affordable housing supply."

Bancon Homes said the levy "fails to acknowledge that many developers in Scotland have not delivered buildings that are unsafe" and that smaller firms were being asked to "subsidise the costs of the remediation programme." It argued that others involved in construction and approvals had also contributed to unsafe buildings.

The company said it had "grave concerns over the viability of our developments."

They added: "There are sites within our control, that will not be complete by April 1, 2027, and as such will be liable for taxation. Without sight of what the rates will be or even comfort that all SMEs based on HMRC definition will be exempt, it is impossible to determine if these sites will continue to be viable.

"This is because the site will have been purchased at an agreed sum which did not take account the implications of the SBSL [Scottish Building Safety Levy]; because it is not known.

"As such the implication of this would and could not have been factored into appraisals and will impact on the viability of those sites.

"If there is not scope in the profit margin to absorb this cost it is likely that sites will be stalled. This is in no one's interest as it results in the creation of new quality places not being complete and detracts from the economic quality of the area."

Bancon said there "can be no doubt" the levy "will negatively impact on development viability" and "reduce the number of homes being delivered in Scotland," calling this "unacceptable" during a "national housing emergency."

Unsafe cladding was blamed for the rapid spread of the fire (Image: PA)

The Scottish Property Federation said the levy would make development "harder".

"In short, we do not believe that government policy should be designed to constrain the supply of new homes at this time," they said.

"By making development harder, the government will also undermine the ability of the private sector to support new forms of housing and support for the delivery of all forms of tenure, including affordable housing."

It also warned that a levy applied at completion "may result in disproportionate impacts on [the] Build-to-Rent sector," where "a levy paid on completion cannot be recouped immediately."

The Finance and Public Administration Committee will hear from Deputy First Minister Shona Robison later this month before publishing its Stage 1 report.

A Scottish Government spokesperson said: “The Scottish Government is committed to doing what is right and necessary to address the challenge of fixing buildings affected by unsafe cladding.

"The development of a levy helps ensure developers make a fair contribution to these costs, just as they are being asked to do under equivalent legislation in England.

“The design of the levy seeks to minimise any negative impacts on housebuilding, such as including protections for small developers and the affordable housing pipeline, while also facilitating adequate funding to support Scotland’s Cladding Remediation Programme, which will make buildings safer.”