BASIC HOUSING ALLOWANCE Frequently Asked Questions (FAQ)

(Updated: 12/30/97)

Iíve heard thereís going to be a new kind of housing allowance. Whatís the story?

On 1 Jan 1998, the Services will begin phasing in a new housing allowance system called the Basic Allowance for Housing (BAH). BAH will be one monthly payment, replacing separate payments of Variable Housing Allowance (VHA) and Basic Allowance for Quarters (BAQ). BAH will be based on rental costs by pay grade, dependency status, and location. The intent of the new allowance is to provide uniformed service members housing compensation based on comparable civilian costs of housing. Civilian comparability considers both salary and location.

Whatís the history on the new housing allowance?

The 1997 National Defense Authorization Act contained a provision tasking DoD and the Services to reform and streamline our current flat rate BAQ and VHA into a single allowance based on rental costs by location. OSD and the Services agreed the new allowance would contain a "save pay" provision (retaining existing housing allowances until PCS).

Will I see a big change in my housing allowance in January 1998?

No, we will move to the new system gradually. Congress has given us the authority to phase in the new allowances over a 6-year period. We intend to use this transition period to avoid sizable changes in any one year. This is necessary given budget considerations and the desire to keep decreases gradual. Of course rate protection will keep individuals from experiencing reductions allowance, as long as their status remains unchanged.

When will the new housing allowance go into effect?

January 1, 1998 marks the start of the six-year transition to the new BAH program. In the first and early years of the transition, the allowances will be virtually identical in form and calculation to the old allowances system (VHA plus BAQ). The BAH rates for 1998 will be based largely on the VHA housing census conducted May-September 1997. In the later and last year(s) of the transition, however, the allowances will be virtually identical in form and calculation to the new housing allowances. At the conclusion of the transition period, BAH will be computed exclusively with the new data and methodology.

Why do we need a new housing allowance system?

The old 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 under the old system. In the new system increases in allowances will be tied to housing cost growth, thus protecting members from erosion of benefits.

In the old system members received a basic allowance for housing (BAQ) and a variable housing allowance (VHA). BAQ was paid at a flat rate worldwide for all members of the same grade and dependency status. Even though VHA rates were tied to housing costs, based on annual surveys of members, BAQ rates were adjusted annually equal to the increase in basic pay. Over all, pay raises, in percentage terms, have lagged behind housing cost growth, so housing allowances did not able to keep up with costs. The pay raise applied to BAQ affected every location equally, even places where housing costs were growing less or actually falling, causing a situation where BAQ was higher than justified based on local housing conditions

In designing the old system, Congress intended BAQ to pay for 65 percent of the national average housing cost for each grade, with VHA paying 20 percent, and the member paying 15 percent "out-of-pocket." By 1997 BAQ paid only about 60 percent of the average member's housing costs, VHA paid 20 percent, hence members were paying about 20 percent of housing costs out of pocket, rather than the intended 15 percent.

How do I know the new Basic Allowance for Housing will be fair?

We have designed the new allowance system to guarantee that the typical service member of a given grade and dependency status will have the same out-of-pocket dollar amount (i.e. the same absorption) at all locations for the same level of housing. For example if the out-of-pocket cost for a typical E-5 with dependents is $100 the typical member of that grade can expect to pay $100 out-of-pocket for housing no matter where assigned (high, medium, or low cost housing area). Of course lower pay grades will have lower out-of-pocket costs.

How do you compute BAH?

The legislation authorizing BAH specifies that the amount of the BAH for a given pay grade and dependency status in a specific geographic location is the difference between the local average monthly cost of housing for that pay grade and dependency status and, approximately, 20 percent (not less than 15 percent) of the nationwide average monthly cost of housing for that pay grade. Though the legislation permits absorption as low as 15 percent, the requirement to keep the new program cost neutral and current funding for BAH explain why current absorption is about 20 percent. We hope to lower absorption, as new funding becomes available.

Will the new Basic Allowance for Housing cover my housing costs?

The typical member of each grade is expected to have a specified out-of-pocket expense. It will be a constant percentage (approximately 20%) of the nation-wide average housing cost for that grade. However, for a given individual, the actual out-of-pocket expense will be greater or lower than the typical, based on their actual choice of housing. For example, if a member chooses a bigger or more expensive residence than is typical for the grade or location, that person will have larger out-of-pocket expenses. The opposite is true for individuals that choose to occupy smaller or less expensive residences. On average, the out of pocket expense will be the same for a given pay grade and dependency status at any location in the United States.

Iíve heard youíre getting rid of the VHA survey. Is this true?

Thatís right. Moreover, weíve done away with the annual requirement to recertify housing expenses. Although members will still be asked to report information, once, when they arrive at each new duty station, we have eliminated reporting requirements that had become a substantial administrative burden

Without a survey, how will you get your data?

We have selected a private contractor (Runzheimer International) to collect the housing cost data that we will use 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. Runzheimerís private sector clients include over 60 percent of the Fortune 500 companies. Runzheimerís 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).


How do you know the new method of measuring housing cost will be more accurate?

The new, civilian-based, method of measuring housing costs is vastly superior to the old VHA member survey. Under the old system, we know that members who scrimped on housing, and then reported low expenditures, only served to reinforce or drive down already low allowances. Similarly, members who overextended their housing expenditures contributed to over inflation of the old allowances. From now on housing allowances will be pegged to standards reflecting members needsónot the influences of economic hardship or windfall.


Does family size make a difference?

No. Although the new allowance will distinguish between with-dependents and without-dependents, the with-dependents compensation will be based on comparable civilians using average family size.


Does the new allowance guarantee that my residence will match what I could get if I lived in government quarters?

No. The new allowance is based on civilian standards, considering the housing choices made by civilians of comparable income in each location.


In determining the income of comparable civilians do you consider military family income which includes the income of the working spouse (if any)?

No. We believe military members should not be put in a situation where spouses are required to work, so in considering the military, we use Regular Military Compensation that equals the sum of military basic pay, BAQ, BAS and tax advantage.

What is BAH rate protection and how does it work?

BAH rate protection keeps members from having BAH fall when new BAH rates go into effect as long as the member retains "uninterrupted eligibility." If the new published BAH for a pay grade is higher than what the member was receiving on December 31, the member will get the new larger amount. However, if the new published BAH for a pay grade is lower than what the member was receiving on December 31, the member will continue to receive the amount prescribed on December 31. In summary, the BAH a member receives can go up, but now down, as long as the member retains "uninterrupted eligibility."

Is there any circumstance that would cause my housing allowance to fall?

Yes, there are three separate circumstances that could lead to a reduction in your housing allowance; each involves a change in your status that interrupts your eligibility for the allowance.

First, and most common, will occur when you PCS to a location where the cost of housing is less than your current duty station. At the new duty station you will get a lower housing allowance, but it will accurately reflect what it costs to live in your new location.

Second, if you are demoted, your housing allowance will revert to the then current published table of allowances for your lower grade. Promotions will not lower your housing allowance.

Third, if you have a change in your dependency status (from with dependents to without dependents, or vice versa), your housing allowance will be determined by your new dependency status and the then current published table of allowances for your grade. In circumstances where rate protection has kept a memberís housing allowance above the then current published rates, the reduction in allowance could be greater than the unprotected difference between with and without dependents.

Why does someone of my pay grade, dependency status, and who works and lives in the same area as I do, get more (less) BAH?

BAH rate protection keeps members from having BAH fall when new BAH rates go into effect as long as the member retains "uninterrupted eligibility." Members stationed in an area with a depressed housing market will see their BAH remain the same (protected), even though new published BAH rates may go down. New members arriving at that duty area will be entitled to the current, lower, published BAH rates. This is not unfair because new arrivals can take advantage of the lower market housing costs on which the new rates are based. Falling housing allowances will not squeeze protected members, who have a fixed commitment (lease or mortgage).


Why do you base BAH on my duty location? Why not my residence location?

The policy decision to use duty location as a basis for entitlement to BAH is based on the desire to compensate members for the typical housing cost within a "reasonable commuting distance" from the member's duty location. Once the duty station is known, the BAH compensation is fixed, regardless of where the member lives. Were we to use the member's residence location as a basis for the entitlement, there is the concern that this would cause members to choose their residence location based on BAH. In some cases, this would lead to the perverse result of members to choosing to live further from their duty station, simply to incur higher BAH. In other cases, when members commute to lower cost hinterlands, members would find their BAH to be lower, even though their commuting expenses are higher. The Services decided to base the entitlement on the duty location, with the full knowledge that members would still be free to live where they choose, but that this decision would not affect their BAH entitlement.

Geographically separated families (geographic bachelors) are normally eligible for BAH based on the duty station of the member. The department budgets for support of a certain number of members and families at each location. If a growing number of people decide to leave their families in Washington, or Tampa while the member PCSs to Mt Home or Ft. Hood, that could skew the budget and service support planning for these locations. Also, a fundamental philosophy of military service is that members, with their families, create a better work environment and esprit de corps when they can be active participants in the local base and community.

In certain circumstances, with specific approval of the secretary of the Service concerned, a member may be granted an exception to receive BAH based on the dependentís location. For example if a member has a sick child that requires medical attention only available in a certain location (say Walter Reed Clinic in Washington DC), and the member receives PCS orders, the member might leave his family in Washington and request BAH eligibility for that location. Such exceptions do not ordinarily apply to "finishing out the school year" or spousal employment.

If people choose to live further away to reduce housing expense, does that lower BAH for everyone else?

No. The new allowance is based on civilian standards, considering the housing choices made by civilians of comparable income in each location.

Why does someone living in another city gets more BAH than I do, when it seems to me that housing is more expensive here?

Accurately determining if one location has more expensive rental markets than another is a scientific and statistical exercise. Sometimes, individuals rely on limited personal experience or on newspaper and magazine articles to make that judgment. The Department of Defense and the Services have concurred that we will rely on Runzheimer International to collect statistically valid housing cost data that we will use 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.

How do you geographically define a locality?

For the purpose of defining the term, "locality," used as the basis for calculating local housing costs, the Uniformed Services have concurred in aggregating individual ZIP Codes into groups called Military Housing Areas (MHA). An MHA includes rental markets, generally within twenty miles or one hour's drive in rush hour traffic, surrounding a duty station or a metropolitan area. The principal goal of defining an MHA based on reasonable commuting distance is that members ought to receive a BAH sufficient to permit the typical member to live a reasonable distance from his or her duty station. Of course, each member is free to choose a neighborhood that suits individual needs, e.g., amenities, schools, and public transportation. Operationally, an MHA is defined as a collection of ZIP Codes. There are about 350 geographic MHAs in the United States, named for the installation or the nearest city (e.g., Fort Hood, Castle AFB, Washington, D.C., and Denver).

What method do you use to calculate BAH in places without Runzheimer cost data?

BAH is defined for every location in the United States, even though some locations may have no military population. This is because we must be prepared with BAH rates should a member or dependent ever establish eligibility in that location. It is not cost effective to collect Runzheimer data for all such locations. To handle this situation, we combine these areas with other areas of similar cost for which we have Runzheimer cost data. Pooling the data in this manner gives us sufficient data necessary to attain statistically reliable housing costs and BAH rates. We determine comparable housing costs using Fair Market Rents (FMRs) published annually for all counties by the Department of Housing and Urban Development. After grouping or pooling the data, the result is a set of counties with comparable housing costs and BAH rates called a County Cost Group (CCG). There are approximately 30 separate CCGs, each with similar housing cost. Each group includes a statistically sufficient quantity of Runzheimer cost data to calculate average housing costs by size and type of dwelling for that group of counties. Although half the U.S. counties (about 1500) are in County Cost Groups, these counties contain less than two percent of the Uniformed Servicesí population eligible to receive BAH.

Whatís going to happen to VHA Offset?

We have eliminated VHA offset. No longer will a member, whose actual housing expense is less than housing allowance, see his or her housing allowance reduced. This will be a major benefit to anyone who chooses to economize on housing. For example, military members will no longer be penalized for being "sharers," or married to other members, the groups hardest hit by offset. Each member will receive the full amount of housing allowance allotted for his or her grade and dependency status.

The elimination of VHA Offset also eliminates the need for an annual requirement to recertify housing expenses, thus removing a substantial reporting burden for members and administrative personnel. Please note that members will still be asked to report information (certify their dependents) when they first arrive at each new duty station

Will my housing allowance still be protected if published rates fall for my location?

Yes. We recognize that that members make housing choices and commitments based on market conditions prevailing when they arrive at a new duty location. Subsequent reductions in market rental prices will be reflected in annually published rates, but members will continue to receive the old allowance if it is higher. If annually published rates are higher than the old allowance, the member is entitled to the higher amount.

Will I get the same housing allowance as other members of my grade at my location?

In most cases, yes, but not necessarily. Rate protection can result in some members of a given pay grade receiving more in housing allowance than others of the same grade. This will occur when housing costs decline in an area. Members who arrived in the area when costs were higher will retain the higher allowances, in order to protect their fixed commitments. Newly arriving members will be eligible for the then current published allowances for the area. This should not be a cause for concern, because current published allowances will be based on current housing market conditions, and will be appropriate for the housing choices available at that time.

Broadly speaking, how will the new allowance system differ from VHA and BAQ?

Our research permits us to identify some general trends of moving from the current housing allowance system (VHA+BAQ) to the new system (BAH). These changes will be gradual and phased in over the transition period. We can expect (1) increases in housing allowances in high cost housing areas; (2) decreases in housing allowances in medium to low cost housing areas; (3) increases in housing allowance for many enlisted grades; and (4) decreases in housing allowances for many officer grades. VHA offset will be fully eliminated when the new system goes into effect on 1 January 1998.


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