Build to rent developments will have to pay new building safety levy

The UK government recently announced it would include Build to rent developments in its latest building safety levy framework. This thwarts campaigns to exclude them because Build to Rent developments are not sold to leaseholders so Build to Rent developers already have to self-fund or seek redress through their development procurement agreements.

What is the building safety levy for brownfield sites?

However, the government has also included a major provision that will undoubtedly support build to rent developers where developments situated on brownfield sites will only face a 50 percent charge under this levy scheme. There were many responses after the announcement, reflecting varying sentiments. Some respondents voiced support for imposing the building safety levy, contending that developers reap significant profits from such projects. Large-scale development projects, categorised by their scale and long-term investment nature, can yield lucrative returns over time. By including these developments in the building safety levy, supporters of the provision suggest that developers should contribute a fair share towards ensuring the safety and compliance of their properties.

Arguments why build to rent developments should pay towards the 2024 building safety levy

Noise against the build to rent camp voiced concerns about the potential unfairness of treating Build to rent developments differently from properties intended for sale. They stressed that developers in the Build to rent sector also vie for land with those focused on for-sale properties. That is why excluding Build to Rent from the building safety levy could confer an unfair market advantage to developers in this sector.

Other viewpoints included suggestions that imposing the levy on Build to rent developments could contribute to a more equitable tax distribution. Thereby helping to reduce the overall levy rate for all properties.

Arguments why build to rent developments should not pay towards the 2024 building safety levy

Conversely, advocates of excluding Build to rent developments from the new 2024 building safety levy argued that developers in this sector generate profits gradually over an extended period, unlike the immediate returns typically seen from the sale of individual properties upon completion. The value of an unbroken building for rent is calculated on a yields basis (rent x yield = capital value) and this is usually less than the sum of the individual apartments for sale values. Therefore, other arguments is that if the capital value or end sale/proceeds are depressed why should the new building safety levy apply.

There is widespread concern that imposing the building safety levy on Build to rent projects might impose excessive financial burdens on developers. The worry being that pressure on costs could render some development sites economically unviable, leading to potential delays or cancellation of projects - this being against the backdrop of a national housing and rental crisis.

Pundits argue that exempting Build to Rent from the levy is warranted because of the nature of these developments often being situated in densely populated urban regions where housing demand significantly surpasses available supply. In this context, build to Rent projects become socially important as they play a key role in contributing to easing housing shortages in these high-demand areas. All that said the argument that carries the most weight it that a building safety levy on Build to rent developments is unfair as such projects are not sold leasehold. Therefore, developers of Build to rent properties do not have access to government assistance to address building safety concerns, unlike developers in other sectors.

Reasons why the UK government says build to rent developments should pay towards the 2024 building safety levy

In its defence, the UK Government argues that the decision to incorporate Build to rent developments into the building safety levy was made after careful consideration. The government acknowledges the distinct profit models between Build to rent and for-sale properties but maintains that both sectors are profitable segments of the house-building sector. Excluding Build to Rent from the levy would create a competitive advantage, considering that both sectors vie for land in a similar fashion.

The Impact of the New Building Safety Levy on the Build to Rent Sector

The inclusion of Build to rent developments in the 2024 building safety levy marks a significant shift in the UK housing sector. While it aims to ensure fair contributions towards building safety, it has sparked debate due to the sector's unique business model. Developers must now carefully consider the financial impact of this levy, as it could affect the viability of certain projects. The government’s approach highlights the need for a balanced strategy that supports safety and affordability while considering the long-term goals of addressing the housing crisis. It remains to be seen how this levy will ultimately affect the Build to Rent sector’s role in tackling the UK’s housing shortage.