The ABC’s of Basic Allowance for Housing (BAH)
BAH is a fundamental element of military pay, and for many Sailors represents a significant portion of their monthly income.
In its simplest terms, BAH is paid to Sailors assigned to permanent duty in the 50 States and the District of Columbia who are not furnished with government housing appropriate to their family status. By law and DoD-wide regulation, the amount of BAH Sailors receive is based on their pay grades, their dependency status, and, as a starting premise, the geographic location of their permanent duty station or home port (not the actual location of their residence).
The BAH program is meant to enable Sailors to afford suitable rental housing within a reasonable distance of their duty location or home port.
Specific BAH rates are based on the costs of adequate housing for civilians of comparable income levels; of course, Sailors are generally free to choose where to live and in what type of dwelling. Due to the difficulty in measuring factors related to home loans, such as expected home appreciation, amount of down payment, tax savings due to interest payments, opportunity costs of interest from down payments, etc., BAH is only calculated for rental housing. Home ownership costs are not considered in setting BAH rates. Geographic location of the duty station or home port plays a significant role in BAH rates across the country; this is the main reason why BAH rates can vary so dramatically from one duty station to the next.
Based on annual data collection, BAH rates may go up or down each year. These adjustments are based on changes within the local rental market within each military housing area. For example, a rental unit surplus might lead to lower average rents in a specific region. However, DoD guarantees that an individual’s BAH entitlement will not decrease while assigned to that military housing area, even if BAH rates decrease.
Even more beneficial, an increase in the BAH rate applies to all personnel within that military housing area. For example, if a sailor’s monthly BAH rate within an military housing area for 2008 is $1,000 and the 2009 rate is reduced to $900, the sailor will continue to receive $1,000 while he or she is assigned to that military housing area. On the other hand, if the 2009 rate goes up to $1,100, the sailor will receive the new rate of $1,100.
Finally, rate protection may also apply to military housing areas where dependents are located; if a sailor is authorized to receive BAH based on dependent location, the rate where the family is residing is also protected.
BAH rates for 370 military housing areas in the United States, including Alaska and Hawaii, are calculated and adjusted by DoD through an annual data collection process. This process is managed by the Per Diem, Travel and Transportation Allowance Committee within the office of the Under Secretary of Defense for Personnel and Readiness, which contracts with Runzheimer International, a recognized industry expert in the field of housing cost analysis, to conduct the annual data collection.
BAH rates are adjusted each year based on three housing-related costs:
- rental housing costs
- utilities (including electricity, heat, water and sewer), and
- renter’s insurance.
Within the rental market, the rent itself tends to account for the largest single element of an individual’s total housing costs, and thus makes up the largest portion of a BAH rate. Collection of objective local market costs on apartments; townhouses and duplexes; and single-family rental units of various numbers of bedrooms occurs in the spring and summer when housing markets are most active. Current, valid rental costs are crucial to accurate BAH rates. Runzheimer International uses data from multiple sources to provide a "checks and balances" approach. First, rental property data is collected from military housing officers, local DoD representatives who submit current data during three cycles in May, June, and July each year. Second, Runzheimer International collects data from local sources within each military housing area. This consists of:
- consulting with real estate professionals in each military housing area to confirm market rental prices and obtaining additional data
- obtaining current residential vacancies from local newspapers and real estate rental listings
- contacting apartment and real estate management companies to identify units for rental pricing within each military housing area
Finally, Runzheimer International consults local housing offices to gain insight into the concerns of service members. Certain types of housing (mobile homes, low-income subsidized housing units, age-restrictive dwellings, etc. are excluded from the data collection. Unsuitable neighborhoods, such as those beyond a reasonable commuting distance, those with sub-standard housing or high crime, etc., also are excluded.
DoD housing standards are calculated to ensure service members receive BAH that will pay for housing that is comparable to civilians who earn a similar income; in other words, housing allowances increase as sailors reach higher pay grades. Data is collected on six housing profiles ranging from one-bedroom apartments to four-bedroom single-family detached houses. The process links housing costs for each type of house to a particular pay grade to form “anchor points” to which all other paygrades are based on (see table below). The “x” indicates an e-4 with dependents will receive BAH close to a 2-bedroom townhouse.
|pay grade w/dependents
|pay grade w/out dependents
|3-bedroom single family detached house
|4-bedroom single family detached house
DoD profile pay grade pay grade
w/dependents w/out dependents
1-bedroom apartment x E-4
2-bedroom apartment x O-1
2-bedroom townhouse E-5 O-1E
3-bedroom townhouse E-6 O-3E
3-bedroom single family
detached house W-3 O-6
4-bedroom single family
detached house O-5
Once data is collected, BAH for other pay grades is determined by interpolating (or “filling in”) between anchor points. For example, since the paygrade of E-7 is not an anchor point, a Chief would receive a BAH between E-6 and W-3. The anchor point for E-4 (with and without dependents) represents the minimum standard and applies to pay grades E-1 through E-3.
Effective January 1, 2008, BAH rates for members without dependents are set at an amount that is at least 75 percent of the “with dependent” rate. The actual difference changes slightly by pay grade.
While utilities represent a portion of total housing costs and therefore are included in calculating BAH, there is no standard percentage across the country. Runzheimer International uses data collected by the Bureau of the Census in its annual American Community Survey to determine average expenditures for utilities specific to each dwelling type in each area. For the 2007 survey, data was collected from more than three million addresses in over 3,100 counties. The survey asks for previous month’s electricity and gas costs and the 12-month average for other fuel, water and sewer costs. Some BAH rates in some locations are reduced or increased slightly based on updated utility cost data.
The renter’s insurance portion of BAH covers the value of household contents, based on the average cost to insure personal property specific to each profile and to each military housing area. Note that homeowner’s insurance is not a part of BAH calculation.
DoD and Runzheimer International recognize the importance of accurate rates and make every effort to obtain maximum reliability. At each step in the process, they employ numerous levels of quality assurance, analyze statistics to spot problems and apply common sense tests to the data. They ensure that the units are acceptable, and that they are located in neighborhoods where members would typically choose to reside. They obtain input on suitable housing and unacceptable areas from housing offices and installation leadership. As another quality assurance step, DoD and the services conduct on-site evaluations at selected locations. These reviews confirm the reliability and accuracy of the rental data. During these visits, they also evaluate the criteria used for screening neighborhoods and other excluded areas.
Runzheimer International consolidates the results of the data collection during the late summer. During the fall, after rental, utility, and insurance data are collected and median housing costs calculated, the Per Diem, Travel and Transportation Allowance Committee (with representatives from each of the uniformed services) reviews the local median housing costs for each military housing area, appraises military housing area and profile-specific utility and renter’s insurance data, and proposes BAH rates for both members with and without dependents in each of the 24 pay grades. At this point, DoD establishes the final adjusted rates to be implemented on January 1 of the following year.
Bottom line: for any given sailor, whether or not they incur out-of-pocket expenses will be dependent on their housing choice. Sailors who rent homes above the median rate for their pay grade or profile will see that BAH will not cover all of their housing costs. The opposite is true for sailors who choose to rent less expensive residences; those sailors may actually experience a BAH surplus and keep that extra money to use as they choose.
While this is intended to explain the basics of how BAH rates are determined, this cannot address all the individual circumstances that might affect any given sailor’s BAH entitlement. For more details, visit the Per Diem, Travel and Transportation Allowance Committee web site, and seek the expertise of your pay, personnel, and housing professionals; and address specific issues through your chain of command.