More Flexible Housing Allowance on the Horizon

Officials with DoD's office of compensation said a new system now before Congress would create an allowance based on actual housing costs in area surrounding each military bases. This new variable housing benefit would replace basic allowance for quarters and variable housing allowance currently earned by most stateside service members.

"The intent is to restructure this into a totally new allowance," said one compensation official. "Instead of having a third of the allowance variable, the whole allowance becomes variable. It will be delinked from the pay raise."

Under the old housing formula, DoD pays a basic quarters allowance based on pay grade and marital status to all personnel living in off-post private housing. DoD currently bases increases to pay raises, so a 2.3 percent pay hike means military personnel also see a 2.3 percent increase in BAQ.

Military personnel living in high-cost areas also receive the variable housing allowance. Housing survey data reported by troops living in about 305 areas such as New York, Los Angeles, San Francisco and Washington are used to compute area rates. The rates are determined for each pay grade and marital status. BAQ and VHA together cover about 80 percent of housing costs for the average member.

However, defense officials said problems began emerging as housing costs increased. "Because BAQ and the pay raise tend to be less than increases in housing costs every year, you could see a gap grow in the cost of housing vs. what we reimburse our people," said the official.

That reimbursement problem should no longer exist by Jan. 1, pending congressional approval. The new program is a price-based system, with allowances determined on the actual price of a house by area. "If you live in a high-cost area and the [housing] market has gone up 10 percent, your allowance will increase 10 percent," said the official. "If you live in a low-cost area where it goes up only 1 percent, your allowance will go up only 1 percent. [Rates] will reflect the market where you are and will not be tied to some arbitrary number that has nothing to do with the cost of housing."

Compensation officials said many reasons are driving the change to a single allowance, but the biggest is a fairness issue involving VHA rates. "You had people in high-cost areas seeing their [VHA] allowances going down while people in low-cost areas were seeing allowances going up," said one official. "This is just the opposite of what the VHA was designed to do. Our people living in low-cost areas were bearing a lot less out of their pockets than the people in high-cost areas."

Officials said many service members in high-cost areas chose to rent homes for less money. "They would sacrifice [house] size or move further away to lower costs -- [do] all kinds of things to accommodate their budget," one said.

However, when those service members reported their annual housing costs, their sacrifices ironically caused VHA rates in their area to drop, thus widening the margin between housing allowances and housing costs.

Meanwhile, the opposite was occurring in the low-cost areas. Troops found living affordable, prompting them to buy or rent better quality homes and pick up the extra expense themselves. Their reported rates caused an increase in VHA rates and larger payments.

Under the new program, DoD will contract a national firm to survey rental costs of cities, towns and neighborhoods surrounding military installations. "By using the contractor, we will be able to adjust for things like commuting distance, safety and security, quality of schools," said the official. "We can also structure where the contractor goes and prices [homes]."

Contracting will give housing officials accurate, current information on market trends surrounding bases. "If there's a housing boom in an area and the prices go up, the contractor will reflect that escalation and the allowances will go up accordingly," the official said.

This structure includes avoiding areas known for poor schools, high crime and substandard housing. DoD will specifically dictate contractors not survey those areas as well as extremely high-cost areas where cost-of-living expenses are beyond a service member's income. "They'll go where the majority of people live now, and over time we'll be able to adjust our contracts to what the services deem important to their members."

The new allowance format would continue to protect service members should area housing rates decline. If a service member receives an $800 monthly housing allowance and the average rate drops, the service member will continue to receive $800. Officials said another person moving into the area may see lower allowances based on their occupancy, but those already renting will continue to receive their fixed rate.

Officials said the new format would also eliminate the annual certification process found in most high-cost areas now paying VHA. Currently, service members must present a rental agreement or mortgage contract verifying their housing costs to their finance officials each year.

Because the new program would base rates on the contractor's area survey, a service member who rents a place where the housing costs are equal to or less than the survey rate would receive the survey.

Officials said home ownership will not have any direct influence on rates. "We'll look at the rental equivalent and pay accordingly," said one official.

One drawback is the change will cost DoD more money, but compensation officials said DoD is willing to pay extra expense to provide quality housing. "Now that we're delinking [from the pay raise scale], we'll try to keep up with housing costs --costs that are higher than our pay raises have been," said the official. "It's going to cost more money to keep up with it, but everybody has agreed that that's what we intend to do as a department, and Congress is willing to pursue that goal as well."