MILITARY UPDATE
Housing allowances to increase for 2004
| • | Chart: Housing allowance |
By Tom Philpott
"Basic allowance for housing" rates will rise by an average of 7 percent, effective Jan. 1, for 820,000 service members living off base in the United States.
The BAH rate increases for 2004 continue a string of annual allowance hikes that exceed the reported rise in rental costs nationwide — 2.9 percent this year — therefore lowering out-of-pocket costs for military renters.
Military homebuyers benefit identically from BAH rates, which are set based on local rents rather than the cost of home mortgages, which not only provide tax breaks but often capital gains when homes are sold.
New BAH rates will be set to cover, on average, all but 3.5 percent of off-base rental costs in stateside areas.
The next BAH adjustment, in 2005, should close the gap entirely, a goal set by the Department of Defense and Congress in the final years of the Clinton administration.
At that time, housing allowance increases were tied not to rising rents but to increases in basic pay which, in turn, were linked to private-sector wage growth. As a result, housing allowances failed to keep pace with rental costs. At one point in the late 1990s, service members paid out of pocket 22 percent of what it cost to rent adequate housing for their pay grade.
In 2004, the Department of Defense will spend $9.8 billion on stateside housing allowances, an increase of $785 million from the previous year. Once again, individual raises will vary by pay grade, family status (with or without dependents) and military housing area.
The average BAH raise for a typical enlisted member — an E-5 with one or more dependents — will be $31 a month. No service member will see monthly BAH fall, thanks to a rate-protection feature adopted a few years ago. Some will see their BAH unchanged, however, because local rents have declined.
Changes in BAH have no immediate effect on service members living off base overseas. They draw a separate "overseas housing allowance."
BAH is designed so that service members in the same grade and with the same dependency status have the same monthly out-of-pocket cost regardless of location. For example, if the out-of-pocket cost for a newly arrived E-5 with dependents is $70 a month in Montgomery, Ala., it should also be $70 for a newly arrived E-5 with dependents in Honolulu.
Rate protection ensures that members, once settled at a duty station, don't sustain decreases in BAH. Besides this individual rate protection, BAH rates also have geographic protection. No BAH rates have gone down in any area of the country for several years. Geographic rate protection ends in 2005. Rates will begin fluctuating again with market rental costs. Individual rate protection will remain.
Rental cost data for each military housing area is gathered throughout the year by defense contractor Runzheimer International from military housing offices and through thousands of phone calls to local real-estate agents, renters, landlords and local Chambers of Commerce.
Though rents climbed an average of 2.9 percent nationally, there was wide disparity across military housing areas. New BAH rates for all stateside areas can be viewed at www.dtic.mil/perdiem/bahform.html.
Questions, comments and suggestions are welcomed. Write to Military Update, P.O. Box 231111, Centreville, VA 20120-1111, or send e-mail to: milupdate@aol.com. Or visit Tom Philpott's Web site.
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