What Is a Basic Allowance for Housing (BAH)?
How the Military's BAH Is Determined
The Basic Allowance for Housing (BAH) provides uniformed service members in the U.S. military with housing compensation when government quarters are not provided. BAH is designed to pay 100 percent of the average housing costs.
BAH is based on the type of quarters authorized for that specific military rank, dependency status, and the local civilian housing market.
History of Basic Allowance for Housing
BAH began in Jan.
1998, replacing the Variable Housing Allowance (VHA) and Basic Allowance for Quarters (BAQ). Under the old VHA/BAQ system, members were surveyed annually to determine how much they were paying for housing costs. However, many members chose to live in substandard quarters, which means the surveys showed they were paying less, affecting the rates authorized. Under the BAH system, the Department of Defense (DOD) surveys housing costs in military areas to determine rates.
Like the old BAQ and VHA, BAH distinguishes between with-dependents and without-dependents, but not the number of dependents. BAH rates are computed as whole dollar amounts, rounding to the nearest dollar.
Improvements to Housing Allowance System
A primary reason for the new BAH allowance was the awareness that the old VHA/BAQ housing allowance system was unable to keep up with housing costs, and members were being forced to pay larger out-of-pocket costs than originally intended.
With BAH, increases are indexed to housing cost growth instead of the pay raise, thus protecting members from any further erosion of housing benefits over time.
The new BAH is designed to be inherently fair, because the typical service member of a given grade and dependency status arriving at a new duty station will have the same monthly out-of-pocket dollar amount regardless of the location.
For example, if the out-of-pocket cost for a typical E-5 with dependents is $100, the typical (median) E-5 with dependents can expect to pay $100 out-of-pocket for housing if assigned to Miami, New York, San Diego, Fort Hood, Camp Lejeune, Minot, ND, or any other duty location in the U.S. Once the member arrives, rate protection applies, and the member will receive any published increase, but no decrease in housing allowances. For members at a given duty station when new BAH rates take effect, rate protection guarantees that typical out-of-pocket may be less, but never more, than when they arrived. (Note: As of January 1, 2005, BAH is calculated for zero out-of-pocket expense).
For a given individual, the actual out-of-pocket expense may be higher or lower than the typical, based on the choice of housing. For example, if a member chooses a bigger or more expensive residence than the median, that person will have larger out-of-pocket expenses. The opposite is true for an individual who chooses to occupy a smaller or less expensive residence.
Better Housing Cost Measurement Under BAH
The BAH employs a civilian-based method of measuring comparable housing costs that is superior to the old VHA housing survey that measured members’ spending on housing.
First, members don't have to put up with the hassle of the annual VHA surveys. More importantly, BAH eliminates the so-called, "Death Spiral." Under VHA/BAQ, members who scrimped on housing and then reported low housing expenditures drove down already low allowances. This mainly occurred among the most junior members whose limited disposable (after-tax) income may have forced them to accept inadequate housing and then report low costs on the member survey.
The Services also recognized that the VHA/BAQ created a similar, but opposite, bias for some senior officer/enlisted grades. Under the old system, if a member opted to use a greater share of disposable income for bigger or more expensive housing, relative to the local market, and reported this expenditure on the VHA survey, it tended to "inflate" reported costs and thus allowances.
Basic Allowance for Housing eliminates both these low-end and high-end biases. Accordingly, published BAH rates increase for many junior members and decrease for some senior members. Again, individuals are protected from rate decreases, but newly arriving members will be paid based on a more accurate and current measurement of housing cost.
How the DOD Determines BAH
In computing BAH, DOD includes local price data of rentals, average utilities, and insurance. DOD collects the data annually, in the spring and summer when housing markets are most active. The data include apartments, townhomes/duplexes and single-family rental units of various bedroom sizes.
The Military recognizes the paramount importance of accurate data and makes every effort to obtain maximum reliability. For example, in selecting specific units to measure, DOD employs a multi-tiered screening process to ensure that the units and neighborhoods selected are appropriate.
The first screening considers reasonable commuting criteria, generally defined as 20 miles or one hour during rush hour, eliminating units that fall outside these limits.
Next, they check to see that the selected unit is in a neighborhood in which military members would choose to reside. Using the Defense Enrollment Eligibility Reporting System (DEERS) data as a key to where members live, DOD focuses on those neighborhoods in which the top 80 percent of military members live. The idea here is to avoid sampling slum, high-crime or undesirable neighborhoods that members have already avoided.
Finally, DOD uses an income screening process to identify appropriate neighborhoods. For example, in pricing three- and four-bedroom single-family units, it is known that member income in senior enlisted/officer grades is between $60,000 and $100,000, so DOD selects single-family units in neighborhoods where the typical civilian income is in this range.
When DOD prices one-bedroom apartments (generally for single junior enlisted) they focus on neighborhoods where the typical civilian income is consistent with the $20,000 to $30,000 income level that is typical for these grades.
For comparison purposes, civilian salary equals the sum of military basic pay, average BAH and the Basic Allowance for Subsistence (BAS) plus tax advantage.
Where the DOD Gathers Housing Data
The DOD obtains current data from multiple sources to ensure reliability and accuracy. Current residential vacancies identified in local newspapers and real estate rental listings are an important source of data. Vacancies are selected at random and subjected to the screening process described above. Telephone interviews establish the availability and exact location of each unit sampled. They also contact apartment and real estate management companies to identify units for rental pricing. It is not uncommon for the DOD to consult real estate professionals in a locality to obtain confirmation and additional sources of data.
The DOD designed the sampling process to obtain a statistical confidence level of 95 percent or higher.
Where available, the DOD contacts fort/post/base housing referral offices to tap local military expertise and gain insights into the local concerns of assigned members.
Finally, DoD and the Services conduct on-site evaluations at various locations to confirm and ensure the reliability and accuracy of the cost data. Future enhancements include examining potential uses of the internet as well as housing data available from other government agencies.
Housing Cost Consultant Runzheimer International
DOD employs Runzheimer International to collect the nation-wide housing cost data that is used to compute BAH.
Founded in 1933, Runzheimer is a recognized leader in the field of collecting cost of living data in the United States and around the world. Currently, Runzheimer serves over 2000 businesses and governments worldwide and is renowned for its accurate and reliable research.
Runzheimer’s private sector clients include over 60 percent of Fortune 500 companies. Runzheimer’s government clients include the Department of Defense (DoD); the General Services Administrations (GSA); the Department of State; the Office of Personnel Management (OPM); the Internal Revenue Service (IRS); and the Federal Deposit Insurance Corporation (FDIC).