Building Safety Levy ‘could disproportionately impact’ SMEs, BTR and all forms of affordable housing

The Scottish Property Federation (SPF) wants a series of urgent exemptions to be made from the proposed new Building Safety Levy (BSL) for SME developers, the Build to Rent (BTR) sector and all forms of affordable housing.

The aim of the levy is to support the funding of the Cladding Remediation Programme, which addresses building safety concerns linked to unsafe cladding materials.

Responding to the BSL consultation, the real estate industry body said while it supports broader measures to improve building safety, it warns that the blanket imposition of the BSL now risks stalling Scotland’s already weak housing delivery pipeline by making more residential schemes unviable to deliver.

Central to the SPF argument is that the housing industry is already contributing via tax and voluntary means towards cladding remediation. This is in addition to the significant tax and regulatory contributions via s75 planning obligations towards affordable housing, transport, education, water, community and other necessary infrastructure.

With construction and financing costs continuing to be high, the cumulative impact of the BSL on top of the range of existing contributions will undermine the ability of the sector to bring forward critically needed new residential development.

Furthermore, warns the SPF, when combined with wider policy uncertainty around measures such as rent controls, it could lead investors to choose locations outside Scotland where development is deemed to be more viable which would represent a significant opportunity cost to Scotland.

In particular, the BSL could disproportionately impact BTR developments because they generate no upfront sales revenue to offset costs, making the charge harder to absorb. BTR schemes are also large-scale, include significant communal space, and rely on long-term investment models that are highly sensitive to additional costs and policy uncertainty. This, SPF argues, further risks eroding the future supply of new homes, including affordable homes.

In addition, the SPF is also raising concerns that the exemption proposed for affordable housing only covers developments that are publicly funded, ignoring the increasingly important role of private capital investment in the delivery of affordable housing. This, the SPF believes, is misplaced and could drive away non-public investment in this crucially needed housing sector.

Robin Blacklock, interim director of the Scottish Property Federation, said: “While we naturally support measures to improve building safety, and tackle some of the legacy issues associated with cladding remediation,  the blanket application of this proposed levy during a declared housing emergency, at a time when development viability is already under severe strain, risks seeing many new homes being delayed or cancelled, thus worsening the supply shortage across all tenures.

“Given the disproportionate impact, we are urging the Scottish Government to exempt SME housebuilders, the Built to Rent sector, and all forms of affordable housing including mid-market and discounted rent model (provided by the private sector) from the BSL to avoid disincentivising critical parts of the housing market.

“With construction and financing costs continuing to be high, the cumulative impact of the levy on top of the range of existing contributions will undermine the ability of the sector to bring forward critically needed new homes and could lead investors to choose locations outside Scotland where development is deemed to be more viable.”

A Scottish Government spokesman 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 Building Safety Levy (Scotland) Bill was introduced to the Scottish Parliament in June 2025. It includes a range of measures to minimise impacts of the levy, including an annual levy-free allowance to support small developers; the ability to vary rates in accordance with differences in house prices across geographical areas and by the type of land being developed, for instance, if greenfield or brownfield.