Warning over developer impact as Scotland approves new building safety levy

The Scottish government hopes the new building safety levy will generate up to £450million in revenue, which will support Holyrood’s cladding remediation programme, when the levy comes into effect in April 2028.

Under the legislation, newly built properties - including build to rent homes and student accommodation – will be subject to an additional charge. Some builds are exempted including social and affordable housing, and homes built on islands, along with an exemption for up to 29 new builds a year for developers, to provide extra support for smaller firms.

The bill passed the final hurdle at Holyrood by 70 votes to 56, despite concerns in the construction industry and from Holyrood’s own finance and public administration committee about the impact it would have on building programmes in Scotland. It will now be sent for Royal Assent before becoming law.

Paul Connolly, a real estate expert with Pinsent Masons in Glasgow, said the building safety levy would add to the challenges faced by residential developers in Scotland.

“Our developer clients have raised concerns about development viability and the supply of new homes as another additional charge is levied on them,” he said.

“The proposed rates for the levy have not been published yet but are anticipated in June, adding to the uncertainty.

“Build to rent developers will be particularly affected, as all the units will be completed and the levy due at the same time. There will not be cash flowing in from the sales of the units as there would be for traditional housing development.”

Russell Munro, a residential development expert with Pinsent Masons, added: “While there are some welcome aspects of the final bill – such as a 50% discount for brownfield sites which was previously agreed – the legislation will raise particular challenges for projects already underway.

“The levy will be payable even if the development was underway before the bill was passed, which may mean developers have not previously factored its cost into overall price of the development.”

The operation of the scheme will undergo regular review and the government has indicated it will consider how to enable flexible payment approaches during its first few years in operation as the industry transitions to the new regime.

Introducing the bill at Holyrood, Scottish public finance minister Ivan McKee said: “All revenues raised will be spent on efforts to rehabilitate existing stock, which will improve safety for residents and homeowners and support the alleviation of the housing emergency.”

Similar legislation was passed in England and Wales last year, and is due to take effect from October.