A new levy on residential development was introduced in England on 1 October and, although it adds only a relatively modest amount to the cost of new-build apartments, collectively it is expected to raise around £3.4bn over ten years towards the cost of repairing building safety defects.
What is the purpose of the levy?
The levy is part of the legacy of the Grenfell Tower fire in 2017 and the subsequent discovery of unsafe cladding and other serious fire-safety defects in apartment blocks around the country.
Many leaseholders found themselves facing potentially huge remediation bills despite having no responsibility for the original defects. Others struggled to sell or remortgage apartments because lenders were unwilling to lend on affected properties.
The government subsequently introduced protections for qualifying leaseholders and placed greater responsibility for remediation costs on developers and building owners.
To help meet the remaining bill, residential developers are now being required to contribute through the levy, reducing the amount that needs to be met by leaseholders or taxpayers.
The scale of the problem
At the end of August, 4,724 residential buildings of 11 metres or more had been identified with unsafe cladding. Of these, 1,849, or 39%, had completed remediation, while work had yet to start on 2,153, or 46%.
The costs involved
The government estimates that the overall cost of remediating unsafe external wall systems is £15.1bn. Around £8.9bn of this is expected to be funded through government programmes, with £6.1bn met by developers, social housing providers and other non-government bodies.
Funding, however, has not been the only reason progress has taken time, with disputes over responsibility and delays in identifying, approving and carrying out remediation work contributing to the backlog.
How does it work?
The levy applies only in England and covers developments of 10 or more homes, or 30 or more purpose-built student accommodation bedspaces, regardless of building height.
It is paid by developers rather than investors or leaseholders, although some, if not all, of the cost is likely to be passed on to purchasers.
The charge is based on the gross internal area of a development, including communal space, with the rate varying by local authority. Developments on qualifying previously developed, or brownfield, land pay half the standard rate.
The levy must be paid before the first completion or occupation certificate is issued, meaning it has to be included in the financing of a development before properties can be completed and sold.
Regional cost variations
Because the cost of the levy is based on local property values, it varies considerably around the country. For comparison, the figures below are based on a standard 70 sq m two-bedroom apartment.
In England, the average cost would be around £1,800, falling to about £900 on qualifying brownfield land.
In London, the average rises to around £4,450, or about £2,225 on brownfield land.
Costs are lower in the big regional cities, ranging from around £1,510 in Liverpool and £1,650 in Nottingham to £1,990 in Manchester and £2,050 in Birmingham. Leeds sits in between at around £1,720.
The actual cost attributable to an apartment will be slightly higher because communal areas such as corridors, lobbies and stairwells are included in the calculation.
