Deputy Prime Minister Angela Rayner (Image: Getty)
’s plan to build 1.5 million new homes faces a significant obstacle after a new cladding was announced, threatening to drive up costs for developers and jeopardising the targets.
The £3.4bn levy, which is set to take effect in autumn 2025, will apply to all new residential buildings.
Already grappling with rising construction costs and regulatory delays, developers have warned that this new tax could cost them between £3,000 and £5,000 per property – a sum that could put large swathes of land across the North and Midlands out of reach for development.
Small family-run businesses that have never constructed larger homes or used cladding will be hit hardest as they struggle to absorb these additional costs.
The Home Builders Federation (HBF), representing over 50,000 businesses in the construction industry, has expressed deep concern over the potential impact of the levy.
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New build houses could be liable to the new levy (Image: Getty)
The group has highlighted that the new tax, combined with other financial pressures, could lead to a reduction in the number of new homes built, especially in less profitable regions.
An HBF spokesman said: “Another new tax on new housing, this time of thousands of pounds on each new property, will have a serious impact on site viability across swathes of the country and put a significant dent in the industry’s ability to deliver new homes.”
The levy, introduced as part of Rayner’s push to speed up remediation works on buildings with unsafe cladding, aims to raise funds from developers to tackle the cladding crisis.
However, developers argue that this tax could do more harm than good, especially as it would increase construction costs at a time when the sector is already under strain.
Angela Rayner and PM Sir Keir Starmer visit a construction site in Cambridgeshire (Image: Getty)
The impact of the levy is expected to be more severe in the South, where land values are higher, and on greenfield sites that are often crucial to meeting housing targets.
Despite the Government’s insistence that the tax won’t impede the 1.5 million homes target, concerns remain that its financial burden could make many housing projects unviable.
The HBF spokesman added: “It’s striking that the Government has refused to conduct an impact assessment.
“They’re relying on speculative guesses that land values will adjust and delivery will rise, but that defies logic. It’s inevitable that less land will come forward for new housing.”
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The growing uncertainty threatens to hinder Rayner’s flagship housing initiative, which is crucial to the Labour Party’s efforts to address the nation’s housing crisis.
Furthermore, the tax could compound existing issues developers face with meeting environmental standards, such as biodiversity net gain and nutrient neutrality. These requirements already add significant costs to housing projects, and the new cladding tax will only add to the financial burden.
With developers unable to reduce the price of the land they acquire for developments, these additional costs will have to be absorbed, making it harder to build in less profitable areas.
The cumulative effect of the new levy, combined with existing challenges, has already had a notable impact on smaller developers. For example, West Sussex-based Sigma Homes recently ceased its housebuilding operations, citing mounting financial pressures.
Berkeley Group has said the tax will place significant pressures on housing delivery (Image: Getty)
Planning delays, rising build costs, and growing challenges with utilities infrastructure were all factors in the decision. Sigma Homes is just one of many companies now struggling to maintain operations, and their experience highlights the broader issues within the housing sector.
Berkeley Group, one of the UK’s largest housebuilders, has also warned of the significant pressures the tax will place on housing delivery. The company recently flagged concerns over the “gateway two” design checks carried out by the Building Safety Regulator (BSR) for high-rise projects.
These checks, which involve a rigorous inspection process for buildings over 18 metres tall, have led to delays in the construction of approved projects.
A Government spokesman said: “We are committed to delivering 1.5 million new homes as part of our Plan for Change and it is not the case that the Building Safety Levy will prevent us from meeting this target.
“It is right that we protect leaseholders and taxpayers from the costs of fixing unsafe cladding and that developers contribute their fair share.
“The Building Safety Levy was announced by the previous government and has been hard-wired into developer planning.
“We are working closely with industry on its design and will announce further details shortly.”