The Pentagon has just announced that the Basic Allowance for Housing (BAH) rates will go up 2.4 percent in 2017.
That evens out to about $41 more per month, according to a DoD press release, but service members’ payouts will vary greatly based on location, paygrade, and whether they have dependents. Rates are based on rent and utility data for a given region, as well as rank and dependent status.
So what does all of this mean to you and your military family? Here are a few answers to frequently asked questions about BAH:
1. Why doesn’t BAH cover all my housing costs or my mortgage payment?
One of the common misconceptions regarding BAH is that it is intended to cover all of a service member’s housing costs. The original BAH law stated that the allowance could cover no more than 80 percent of calculated housing costs. Accordingly, the average service member had at least 20 percent of out-of-pocket expenses subtracted from their allowance calculation.
In 2000, the Secretary of Defense committed to reducing the planned average out-of-pocket expense for the BAH Primer January 2016 Defense Travel Management Office 8 median member to zero by 2005. In 2015, the planned out-of-pocket expense was reintroduced at a rate of 1 percent of national average costs per grade. In 2016, it was 2 percent.
As previously noted, the actual out-of-pocket expense for an individual may be higher or lower than the typical, based on his/her actual choice of housing. For example, if a service member chooses a bigger or more costly residence than the median, he or she will have larger out-of-pocket expenses. The opposite is true if a service member chooses to occupy a smaller or less costly residence. Only for the member with median costs do we say that the out-of-pocket expense is the same for a given pay grade and dependent status in any location in the United States.
By design, BAH does not consider mortgage costs. Homeowners’ monthly mortgage payments do not necessarily relate directly to rent, so we do not use them in the calculations. Mortgage payments are affected by the expected appreciation in the value of the residence, the amount of down payment, the opportunity costs of interest from down payments, the settlement costs, and tax savings due to the deduction of interest payments.
In contrast, BAH reflects current rental market conditions, not the historical circumstances surrounding existing mortgage loans.
2. How will the out of pocket impact service members?
The actual impact of the changes to Basic Allowance for Housing computations will vary depending on a member’s housing choices. Members who rent a median-priced property will have to pay a small amount above their Basic Allowance for Housing rate. Members who choose to economize in their housing choices may have all their housing expenses covered by Basic Allowance for Housing. Some members, renting properties above the median price for the area, have already been paying some housing costs out of pocket.
3. Why is BAH based on my duty station rather than where I live?
BAH compensates members for typical housing costs surrounding their duty station. Once the duty station is known, the BAH is fixed, regardless of where the member chooses to live. If the location of the member’s residence were used as a basis for the entitlement, members who commute from lower cost areas would have lower BAH rates, even though their commuting expenses were higher.
The BAH rate is determined by the duty station so that members may live near their duty location, but they remain free to live where they choose. Actual member choices, remember, do not influence the calculation of rates. The opportunity for service members to choose their off-base housing is important to DoD. Each member has the freedom to decide how to allocate his or her income (including housing BAH Primer January 2016 Defense Travel Management Office 9 allowance) without a penalty for deciding to conserve some dollars on rent to pay other expenses.
One such choice that members frequently make is to “trade-off” a longer commute to work for either a larger or less expensive house in an outlying area. For example, two members assigned to a downtown duty station may make drastically different housing choices. One member may choose to use all of his or her housing allowance to rent an apartment in the city, with a commute time of only 10 minutes to the downtown duty station. The second member might prefer to rent a less expensive three-bedroom house in an outlying neighborhood and commute to that same downtown duty station from 20 or 30 miles away. Both members are free to choose the situation that best suits them.
4. Why can I get a bigger or better residence on-base/post?
Two reasons. First, government housing (especially privatized housing) often surpasses typical local community housing in quality and size. Second, family size is the basis for on-base housing assignment. That is, Services house families with more dependents in units with enough bedrooms to meet their family needs.
The BAH approach is based on comparing a member’s compensation with that of civilians who earn the same. Members at higher grades receive BAH based on more bedrooms and larger dwelling types. The only distinction is with or without dependents, not the number of dependents.
5. What is the basis for the current definition of my Military Housing Area?
MHAs were originally defined using the Defense Enrollment Eligibility Reporting System (DEERS) data. DEERS data provided information on where members at each installation were living. This created a data set that naturally excluded undesirable neighborhoods, which members had already avoided. However, DoD and the Services realize that populations, neighborhoods, and housing conditions can change over time. Periodic re-examining of MHA boundaries is an important and on-going part of the BAH process. A comprehensive review of MHA boundaries was conducted in 2011-2012; boundary changes resulting from this review accounted for closed and realigned installations and military and civilian demographic shifts.
6. What method do you use to calculate BAH in locations that are not in an MHA?
BAH is defined for every location in the United States, even though some locations may have no military population because we must be prepared to pay BAH in case a member or dependent ever establishes eligibility in that location. Collecting rental data for all such locations is not practical.
To handle these situations, we combine these areas with other MHAs of similar cost for which we have sufficient rental cost data. Pooling the data in this manner gives us sufficient data to establish statistically reliable housing costs and BAH rates. We determine comparable housing costs using Fair Market Rents (FMRs) published annually for all counties by the Department of Housing and Urban Development (HUD).
After grouping or pooling the data, the result is a set of counties with comparable housing costs and BAH rates called a County Cost Group (CCG). There are 39 CCGs. Each group includes a statistically sufficient quantity of rental cost data to calculate average housing costs by size and type of BAH Primer January 2016 Defense Travel Management Office 10 dwelling for that group of counties. Although half the U.S. counties (about 1,500) are in County Cost Groups, these counties contain less than two percent of military members eligible to receive BAH.
For more information on BAH go here.