A neighborhood in Iroquois Village on Fort Carson, Colo. (U.S. Army)
The Pentagon should consider changes to its Basic Allowance for Housing methodology to better insulate troops against swift changes to the housing market and better reflect the types of residences in which they choose to live, a new study suggested.
Most troops surveyed by the Defense Department in recent years have reported monthly BAH payments were sufficient, yet the Rand Corp. study published Monday found housing allowance calculations would benefit from localized adjustments to better reflect the types of housing that troops tend to choose around their installations. The study also found the data used to determine BAH rates might not always reflect the best housing options for service members, especially when rent prices skyrocket, as they did during the coronavirus pandemic in 2020 and 2021.
“Overall, our analysis suggests that, in many ways, BAH is generally adequate for Army personnel, though not necessarily when the housing market is changing rapidly and dramatically, as it has in recent years,” the Rand analysts wrote in the 115-page report.
Rand completed the study last year at the Army’s request, relying largely on data collected from soldiers stationed at six stateside posts — Fort Campbell, Ky.; Fort Carson, Colo.; Fort Cavazos, Texas; Fort Liberty, N.C.; Fort Moore, Ga.; and Joint Base Myer-Henderson Hall, Va., just outside Washington, D.C. The analysts noted despite using only Army data, the BAH rates are set by the Pentagon for the entire military, and the analysts’ findings extend to the other service branches.
BAH rates are calculated annually based on a service member’s geographic location, rank and status of dependents, and they are meant to cover some 95% of housing costs for service members, according to the Pentagon. The methodology that the department uses to set rates has gone unchanged since 1998, according to Rand.
The Pentagon pays BAH based on six housing profiles for its service members that range from a one-bed apartment profile for an E-4 — a specialist or corporal in the Army — up to a four-bedroom, single-family home for an 0-5 — a lieutenant colonel in the Army — or higher rank with dependents. It sets BAH rates annually based on a complex methodology meant to estimate the local median rental places across 340 locations near military installations around the globe.
Rand analysts found — at the six Army posts it studied in the U.S. — service members generally chose to live close to their installations, but the vast majority also chose to live in larger housing units than their BAH profile suggested.
Rand suggested the Pentagon further study its BAH profiles and consider adjusting how they are determined.
“While [military] members are not required to live in the profile assigned to their grade and dependency status, the small share of soldiers living in the assigned profile challenges the face validity of using these profiles to set BAH rates for Army personnel in these locations,” the analysts wrote.
The study also found the Pentagon should look closely at how it determines annual BAH rates given the dramatic rise in rent and housing costs in 2021 during the coronavirus pandemic. That year, as troops struggled to find limited housing around installations, the Pentagon issued temporary increases in BAH rates in some of the locations that saw rental rates rise 10% or more in a matter of months.
Despite that temporary boost, troops struggled to find adequate housing around several military posts, including Joint Base Lewis-McChord in Washington state, Fort Drum in New York and Fort Irwin in California, officials said at the time.
In its study, Rand found BAH calculations did not keep up with the massive increases in rent prices across the United States in 2021 and 2022, likely a result of a problematic algorithm that had not seen such a quick spike in rental prices since it was introduced in 1998.
The analysts said the methodology appeared to track only available rental prices and likely did not take into account the year-over-year or month-over-month changes to rental prices. Rand compared the BAH rate increases to real estate tracker Zillow’s rental price index and found the Pentagon’s rate increases fell far below Zillow’s estimated rent increases during that time.
The gap between the BAH rate and the Zillow estimate was as large as 40% in some cases, especially around Forts Moore and Cavazos, Rand found. The analysts suggested one factor might be because of the tight rental market, nicer housing was not available as often as it typically would be, limiting most of the available rental unit data used for BAH calculations to subpar housing units.
“Understanding why BAH rate changes did not keep up requires more in-depth information about the BAH rate-setting methodology, but one possible explanation is that the quality of available housing declined beginning in 2021 as vacancy rates plummeted,” the report stated.
Rand suggested the Pentagon study its BAH methodology to insulate it from future rental price spikes. The analysts did not suggest specific means for making such a change.
“DOD should identify ways to improve the resiliency of the BAH methodology when the housing market is changing quickly and dramatically, such as occurred during the COVID-19 pandemic and thereafter,” the analysts wrote.
