Privatized housing residents to feel 'BAH' pinch, too

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U.S. Air Force
U.S. Air Force

Privatized housing residents to feel 'BAH' pinch, too

by: Tom Philpott | .
Special to Stars and Stripes | .
published: January 23, 2015

Families living in privatized military housing units will not escape the impact of moves Congremade last month to dampen the value of Basic Allowance for Housing (BAH), says a Defense Department housing expert who is coordinating with service branches to implement the changes.

The result will be that families moving into privatized base housing will begin to pay rent that is one-percent higher than their monthly BAH, and could be 3 percent higher by 2017.

Older generations of military retirees and veterans might not know that, starting in 1997, the services began to enter partnerships with private developers to renovate or build, and then manage and maintain, stateside family housing.  Today there are 205,000 privatized military housing units, mostly apartments and townhouses but also single family homes.

Indeed, the only stateside housing the military still owns are historic general officer quarters and small clusters of homes at small, remote bases where no private partners could be enticed to cut takeover deals. 

Families electing to live in privatized base units sign rental contracts that, until this year, had one unique feature: rents always matched their monthly BAH.  Those who agree to pay using payroll allotment avoid a security deposit.  Other occupants must write monthly checks or arrange electronic transfers to the housing management company just like families have to do renting on the local economy.

Congress last month voted to allow BAH rates, starting in 2015, to be trimmed in two ways: by setting rates to cover only 99 percent, not 100 percent, of average rental costs for members’ pay grade and assignment area; also by no longer including in BAH added dollars to cover the expense of renter’s insurance in case personal property is damaged or stolen.

Both changes are reflected in BAH rates published Jan. 1.  And as military renters moving into housing on the economy feel the effect of slightly dampened allowances, so too will families moving into privatized base housing, the Defense official said.  He declined to be named so he could speak more frankly about privatized housing and new BAH changes.

“The basic premise is that whatever is happening to everybody in town, whatever added burden they’re bearing whether it’s one percent [of average rental costs] out of pocket or absent renter’s insurance, then people on base will bear the same burden,” said the official. 

A BAH rate protection rule ensures that families living off base they won’t see a drop in allowances unless they move to new assignments or have to change residences.  That same rule protects those already residing on base.  As long as they stay in current base housing, they won’t have to pay rent in excess of monthly BAH.

Sometime soon, however, Army, Air Force, Marine Corps and Navy housing officials will give notice that members moving into privatized housing will have to pay rent equal to BAH plus one percent.  That will match the one-percent absorption rate designed into 2015 BAH rates, and already being felt by new occupants of housing on the local economy.

The out-of-pocket cost, the housing expert explained, is “not hard to figure out because the absorption is the same for each pay grade all across the country,” he said.  “With one percent, the absorption range…is going to range from about $16 a month up to $25.”

Under current privatization deals, housing managers are required to provide renters’ insurance to military tenants.  Under new contracts, renters will have to purchase their own.  Some might find they already have such coverage through USAA or other insurers that are popular with the military.  If they don’t, families will be encouraged to buy their own renter’s insurance but it will be their personal choice.

The Obama administration’s defense budget for fiscal 2016 is expected to seek another one percent dampening of BAH next January and again in 2017.  If Congress agrees, BAH would cover only 97 percent of rental costs.

Military housing officials have more in mind than fairness-for-all-BAH recipients in requiring tenants on base to pay some rent out of pocket as BAH rates are curbed.  Those rent payments not only covers fees promised by contract to housing managers, but part of those dollars supports local “recapitalization” accounts to repair and maintain base housing units.

The housing official explained that about one third of privatized units, mostly those in high-rent areas like California and Hawaii, have robust recapitalization accounts because BAH there is relatively high.  Another third of base housing have adequate maintenance and repair dollars.

But the final third of privatization housing inventories are in rural areas, mostly on or near Army and Air Force bases.  Their recapitalization accounts are barely sufficient to keeping housing in good condition. These bases could begin to see housing deteriorate if cash flows from renters are allowed to fall by three percent, after inflation, over the next three years.

“As far as we’re concerned it’s an equity issue,” the official said. “But it’s also a maintaining-quality-of-housing issue.  And if you put those two together, it’s just obvious that’s what we should do.”

DoD and service officials discussed for 18 months how rents on base should be handled if Congress agreed to a plan to curb BAH rates.  The services had a different worry in 1997 when they began signing privatization deals with developers on the understanding that rents collected would equal BAH.  At that time, BAH covered only 80 to 85 percent of average rental costs on the economy.  Some developers soon struggled to avoid default.

In 1999, then-Defense Secretary William Cohen won a pledge from Congress gradually to raise BAH until rates covered 100 percent of average rental costs off base.  The big worry for privatization deals shifted to windfall profits.  That’s when the services began restructuring deals so a portion of rental streams went into recapitalization accounts, which are jointly managed by local military housing officials to ensure housing quality is sustained.

The big worry now might be getting renters on base to understand.