Stateside housing allowances to rise

by Tom Philpott

Monthly housing allowances for 910,000 service members living off base in the United States will climb by an average of 8 percent, effective Jan. 1, say Defense Department officials.

The rise in individual rates, however, will vary significantly, from no change for some grades in some areas to as much as 20 to 30 percent for military renters in high-cost areas such as Hawaii.

The 2005 Basic Allowance for Housing (BAH) rates not only will keep pace with an average 4.4 percent rise in rental costs nationwide over last year but are high enough to close a remaining 3.5 percent gap between 2004 BAH and median rental expenses nationwide.

BAH recipients will enjoy a fifth and final “above-inflation’’ annual adjustment that since the year 2000 has eliminated a 22 percent disparity between stateside allowances and rental costs reported in housing surveys.

With the new rates, said Tim Fowlkes, director of BAH for the Defense Department, out-of-pocket costs for stateside renters will fall to zero, assuming they rent at the local median cost for the type of housing deemed appropriate to their pay grade.

“If they choose to rent above the median rent, then they would have some out-of-pocket costs,’’ Fowlkes said. ”Likewise, if they choose to rent below the median, they would actually have some extra’’ cash to pocket.

The accompanying chart shows 2005 rates for Cannon Air Force Base. Rates for all areas can be found online at:

https://secureapp2.hqda.penta

gon.mil/perdiem/bah.html

BAH rates are set so that service members of equal rank and with the same dependency status have equal purchasing power to rent housing, regardless of where they are assigned. The tax-free allowance is to cover not only median rental costs locally but average utility expenses — electricity, heat and water — and renter’s insurance.

Total BAH payments in 2005 will reach $12.3 billion, up $2.5 billion, or 25 percent, from 2004. An additional 90,000 members will qualify. Some of that growth, Fowlkes said, results from mobilized Reserve and National Guard members who are eligible to draw BAH while activated. Their BAH typically is based on where their families reside while they are deployed.

Also, he said, thousands more active-duty families are eligible for BAH this year due to housing privatization, a program to move families out of aging military units and into new or renovated private-sector housing with developers agreeing to set rent equal to members’ monthly BAH.

Revised BAH rates have no direct impact on service members living off base overseas. They get an Overseas Housing Allowance that is adjusted in the spring and fall each year to reflect changes in out-of-pocket costs for stateside peers and changes in the dollar’s value relative to local currency.

Stateside, BAH is paid both to military homeowners and renters but the allowance is based on rental costs alone, avoiding the complex financial experience of homebuyers who can claim tax breaks on mortgage payments and often realize capital gains on the sale of their homes.

Most BAH recipients are married and thus receive BAH at the higher “with dependents’’ rate. A sampling of nationwide averages shows with-dependents BAH rising in 2005 by $47 a month for grades E-1 through E-4, $60 a month for E-8s, $63 for O-3s and $83 for O-5s.

BAH recipients enjoy two forms of rate protection — individual and geographic. Individual protection, set in law, ensures that no service member sees a decline in BAH from one year to the next unless they change assignment areas, dependency status or suffer a reduction in pay grade.

Geographic rate protection is a policy decision, first made by Defense Secretary William Cohen in 2000 and continued since then. In effect it prevents Fowlkes, as BAH director, from lowering rates in any military housing area, even if housing surveys show costs have declined. In the past year, they actually did decline, in perhaps a few dozen housing areas, enough to lower BAH if geographic rate protection wasn’t imposed.

That protection made sense while the department was committed to closing a gap between BAH and rental costs nationwide. It could be lifted for 2006 and beyond.

“I don’t think we have yet made a final decision on whether geographic rate protection will expire at the end of (2005),’’ Fowlkes said.

“My sense is,’’ he added, “that housing costs have not dropped dramatically in any location … So I don’t expect dramatic decreases if geographic rate protection were to end.’’

BAH changes are based on rental cost data for six different types of housing in each of 370 military housing areas. Data are gathered throughout the year, primarily by local military housing offices, from Realtors, renters and classified advertising. A defense contractor, Runzheimer International, conducts its own surveys to verify the accuracy of housing office data.

Tom Philpott can be contacted at Military Update, P.O. Box 231111, Centreville, Va. 20120-1111, or by e-mail at:
milupdate@aol.com