Military Housing: DOD Needs to Address Long-Standing Requirements
Determination Problems (03-AUG-01, GAO-01-889). 		 
								 
This report reviews the Department of Defense's (DOD) family	 
housing program focusing on (1) whether DOD has implemented a	 
standard process for determining the required military housing	 
based on housing available in the private sector and (2) how an  
increase in the housing allowance is likely to affect the need	 
for housing on military installations over the long term. DOD has
not implemented a Department-wide standard process for		 
determining military housing requirements, despite calls from	 
Congress, GAO, and DOD's Inspector General. DOD and the services 
have worked to develop the framework for the process, but	 
technical concerns--such as standards for affordable housing and 
commuting distance--have stalled its adoption. Increasing the	 
housing allowance heightens the urgency for a consistent process 
to determine military housing requirements because it is expected
to increase demand for civilian housing, and lessen the demand	 
for military housing. From a policy standpoint, increasing the	 
allowance better positions DOD to rely on the private sector	 
first for housing because it removes the financial disincentive  
to living in civilian housing. From a management standpoint,	 
considerable evidence suggests that it is less expensive to	 
provide allowances for military personnel to live on the civilian
market than to provide military housing. While overall program	 
costs are increasing significantly in the short term to cover	 
increased allowances, DOD could save money in the longer term by 
encouraging more personnel to move into civilian housing.	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-01-889 					        
    ACCNO:   A01518						        
  TITLE:     Military Housing: DOD Needs to Address Long-Standing     
             Requirements Determination Problems                              
     DATE:   08/03/2001 
  SUBJECT:   Housing programs					 
	     Military housing					 
	     Private sector					 
	     Defense cost control				 
	     Housing allowances 				 
	     Military expense allowances			 
	     DOD Family Housing Program 			 

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GAO-01-889
     
Report to the Secretary of Defense

United States General Accounting Office

GAO

August 2001 MILITARY HOUSING DOD Needs to Address Long- Standing
Requirements Determination Problems

GAO- 01- 889

Page 1 GAO- 01- 889 Military Housing

August 3, 2001 The Honorable Donald H. Rumsfeld The Secretary of Defense

Dear Mr. Secretary: One of the pressing issues the Department of Defense
(DOD) faces is its outsized and decaying infrastructure, and this problem is
prominent in the family housing program. By DOD?s estimates, about two-
thirds of military housing is inadequate and would require $16 billion and
almost 30 years to renovate or replace using traditional military
construction. Efforts to use private contractors to build and operate
housing are off to a slow start and may require long- term commitments (50
years or more) from the government. DOD?s policy is to rely on the private
sector first for housing, but military members that live in private- sector
housing and receive a cash allowance have paid $200 or more monthly in out-
of- pocket costs. These additional costs are a significant disincentive for
living in civilian housing, and avoiding them appears to be a primary reason
that military members choose to live in military housing. In January 2000,
the Secretary of Defense announced an initiative to increase allowances for
servicemembers living in civilian housing to eliminate, by fiscal year 2005,
the additional costs. In a recent report, we noted that about 72 percent of
servicemembers prefer civilian housing if cost is not a factor, and
concluded that increasing allowances to remove this disincentive would
better satisfy the preferences of servicemembers and be likely to increase
the use of civilian housing. 1

DOD?s Family Housing Program is designed to provide military housing when
adequate, affordable private- sector housing is unavailable. DOD recently
set out to implement a standard process for determining what housing is
needed on its installations. Prior reports by GAO and others have found this
process to be flawed because the military services have inconsistently
considered the availability of private sector housing (see app. I). In the
wake of the initiative to increase housing allowances- which the Department
estimated would cost over $3 billion in incremental costs through 2005- it
is critical to have an accurate requirements- setting

1 Military Personnel: Higher Allowances Should Increase Use of Civilian
Housing, but Not Retention (GAO- 01- 684, May 2001).

United States General Accounting Office Washington, DC 20548

Page 2 GAO- 01- 889 Military Housing

process underpinning the program to avoid unnecessary housing investments.
Thus, we determined (1) whether DOD has implemented a standard process for
determining the required military housing based on housing available in the
private sector, and (2) how the increase in the housing allowance is likely
to affect the need for housing on military installations over the long term.

DOD has still not implemented a Department- wide standard process for
determining military housing requirements, despite calls from Congress, GAO,
and DOD?s Inspector General. DOD and the services have worked to develop the
framework for the process, but technical concerns- such as standards for
affordable housing and commuting distance- have stalled its adoption. A
requirements- setting process that first considers the housing available
around installations would likely decrease the amount of needed military
housing. However, according to a recent study, the services appear to want
to protect their current family housing inventories, which conflicts with
DOD?s stated policy of relying on the private sector first for housing.
Without an accurate requirements- setting process based on the availability
of private sector housing, DOD will continue to have inadequate information
with which to make decisions about where it should renovate, build, or seek
to privatize military housing.

Increasing the housing allowance heightens the urgency for a consistent
process to determine military housing requirements because it is expected to
increase demand for civilian housing, and lessen the demand for military
housing. From a policy standpoint, increasing the allowance better positions
DOD to rely on the private sector first for housing because it removes the
financial disincentive to living in civilian housing. Since military members
prefer civilian housing if costs are equal, the demand for civilian housing
will likely increase as out- of- pocket costs are eliminated. From a
management standpoint, considerable evidence suggests that it is less
expensive to provide allowances for military personnel to live on the
civilian market than to provide military housing. While overall program
costs are increasing significantly in the short term to cover increased
allowances, DOD could save money in the longer term by encouraging more
personnel to move into civilian housing. In the meantime, without an
accurate determination of military housing needs, the Department may spend
millions of dollars to construct, renovate, or privatize housing that in
some locations is unnecessary.

We recommended that you expedite the implementation of a consistent process
for establishing military housing requirements and demonstrate Results in
Brief

Page 3 GAO- 01- 889 Military Housing

the need for new construction, renovation, or privatization projects, before
submitting requests for funding to Congress. The Department reviewed a draft
of this report and generally concurred with our conclusions and
recommendations. In comments on this report, the Deputy Under Secretary of
Defense (Installations and Environment) agreed that a single, consistent
requirements- setting process is needed. However, he noted that significant
issues-- related primarily to service concerns about losing military
housing-- still need resolution before such a process is adopted. The
Department partially concurred with our recommendation that the need for new
construction, renovation, or privatization projects be demonstrated before
submitting the requests for funds to Congress, indicating that the amount of
inadequate housing in the inventory necessitates some investment while the
requirements- setting procedures are being developed. While we agree that
some new projects may need to go forward, DOD should closely review proposed
projects with the aim of limiting new construction, renovation, and
privatization projects until valid housing requirements can be determined.
Projects submitted for funding in the absence of a clear determination of
need based on consideration of available private- sector housing risk
spending scarce resources on infrastructure that DOD does not, or will not,
need.

DOD?s housing management manual states that military- owned, -leased, or
-sponsored housing may be budgeted to meet long- range requirements in areas
where the local community cannot support the housing needs of military
members. Military housing may also be required if available housing in the
community has been determined to be unacceptable or if personnel must reside
on the installation for reasons of military necessity. 2 Each service is
responsible for determining family housing requirements.

In general terms, the services should determine their on- base housing
requirements based on the number of military families at an installation
that are seeking housing, minus the affordable and acceptable supply of
existing rental housing units available to the military in the private
sector. The supply of private sector housing should be calculated through a
detailed housing market analysis and should include a count of available
houses in the private sector based on the housing allowances for each pay
grade, considering family size. An installation has a housing deficit if a
greater number of personnel are seeking housing than the private sector

2 DOD Housing Management Manual (DOD 4165. 63- M, Sept. 1993). Background

Page 4 GAO- 01- 889 Military Housing

can support. Conversely, a surplus of on- base housing occurs if the private
sector housing supply is greater than the number of families seeking
housing.

DOD has acknowledged the need for further reductions and the streamlining of
its infrastructure. In the most recent Annual Defense Report, the Secretary
of Defense stated that the Department continues to seek congressional
approval for additional rounds of base realignments and closures. 3 By
eliminating excess infrastructure and consolidating its forces at fewer
bases, the Department believes it will be able to spend its resources on
forces and equipment critical to its modernization effort. As part of our
ongoing Performance and Accountability Series, we reported in January of
this year that infrastructure costs continue to consume large portions of
DOD?s budget. Our recent analysis of DOD?s Future Years Defense Program
documents for fiscal years 2001- 2005 showed that the proportion of
resources devoted to direct infrastructure relative to mission has not
changed, despite expectations that it would decrease. 4

After years of effort, DOD has not yet implemented a DOD- wide process for
determining requirements for family housing on its installations. As a
result, the Department cannot know with assurance how many housing units it
needs and where it needs them and may be investing in infrastructure it no
longer needs. The Department has worked to develop the framework for a
process to determine family housing needs that requires reliance on the
private sector first to house its servicemembers. However, it has not
adopted the process because of a lack of consensus across DOD on common
standards such as the definition of affordable housing and acceptable
commuting distances. Moreover, a recent study by the Center for Naval
Analyses indicates that the services seem to be protecting their existing
family housing infrastructures because of concerns about a potential loss of
military community. 5

3 2001 Annual Report to the President and the Congress.

4 Major Management Challenges and Risks: Department of Defense (GAO- 01-
244, Jan. 2001). 5 Housing Requirements Methodology: An Interim Report
(Center for Naval Analyses, Mar. 2001). DOD Has No

Department- Wide Process to Determine Military Housing Requirements

Page 5 GAO- 01- 889 Military Housing

Over the past several years, the Congress, GAO, and the DOD Inspector
General have been critical of the inconsistent methodologies used by the
services to determine the availability of housing for military families in
private sector areas surrounding military installations. In September 1996,
we found DOD had not maximized the use of private sector housing because,
among other reasons, the housing requirements analyses often underestimated
the ability of the private sector to meet housing needs. The Department?s
Inspector General recommended in a 1997 report that DOD develop a
Department- wide standard process and standard procedures to determine
family housing requirements. Further, the Inspector General cautioned that
the Department and the Congress did not have sufficient assurances that
requests for funds for housing construction on military installations
addressed the services? actual needs in a consistent and valid manner (see
fig. 1 for a chronology of selected reports concerning military family
housing). 6 Appendix I provides a summary of recent reports concerning the
military family housing program.

6 DOD Family Housing Requirements Determination (Inspector General Report
No. 98- 006, Oct. 1997). Housing Requirements

Foundation Still Unreliable

Page 6 GAO- 01- 889 Military Housing

Figure 1: Chronology of Selected Reports Concerning DOD?s Housing Program

Source: GAO.

The Department has acknowledged that fundamental requirements- setting
problems linger. In the 2001 Annual Defense Report, the Secretary of Defense
reported that

?The Department continues to work on the development of a single model for
determining the government- owned housing needs using a set of standard DOD-
wide factors along with flexible variables that accommodate service
differences. This model will help DOD determine the number of government-
owned housing units that need to be constructed or maintained as well as
determine the size of the Department?s housing privatization projects.?

DOD and the services have worked to develop the framework for a single,
consistent process for determining housing requirements. The proposed
framework would require the military services to conduct a market analysis
surrounding each installation to determine the amount of

Page 7 GAO- 01- 889 Military Housing

adequate, affordable housing the private sector could provide. Once this was
determined, available housing would be compared to military personnel
needing housing and the difference would be the military housing
requirement. According to Department housing officials, the proposed process
would provide the services latitude in applying service- specific criteria
and military judgment in developing housing requirements. For example, the
requirement could be adjusted for the retention of housing for key and
essential personnel, a percentage of personnel in each pay grade, and for
the retention of historic housing. According to DOD housing officials, each
of these factors would usually have a relatively small impact on the
requirement. In our view, some flexibility in the process is warranted
because of the differences in private sector housing around each
installation, but DOD must carefully monitor the services use of this
flexibility to ensure that they adhere to Department policy to use the
private sector first for housing their service families.

While DOD has worked to develop the framework for a consistent process,
Department housing officials stated that several issues remain unresolved.
Issues such as what constitutes affordable civilian housing and reasonable
commuting distances have slowed the adoption of the process. For example,
the Air Force recently reduced the acceptable commuting distance from the
60- minute standard used by the other services to a 30- minute standard.
According to a recent Center for Naval Analyses report, the services will
need to agree on each element of the new requirements procedure before it
can be finalized. The report further stated that the Office of the Secretary
of Defense must obtain agreement among the services or be forced to impose
the standards. 7 Department housing officials stated that once a new process
is in place, it will take years to update the housing requirements DOD-
wide, since the detailed market analyses must be performed base by base.
This is of concern, because the Department risks investing valuable
resources in housing that it does not need.

7 Housing Requirements Methodology: An Interim Report (Center for Naval
Analyses, Mar. 2001).

Page 8 GAO- 01- 889 Military Housing

In late 1999 and 2000, each of the military services submitted Military
Family Housing Master Plans to Congress that document deficits in military
housing. These plans indicate that, DOD- wide, the services want about 12
percent more military housing units than they have. In addition, the plans
show that about two- thirds of the approximately 285,000 aging government-
owned houses are in inadequate condition. The housing plans show that the
services plan to address inadequate and deficit family housing through a
combination of military construction and privatization initiatives. About 3
percent of family housing units were deemed surplus. (See fig. 2 for a
status of military family housing units for each service.)

Figure 2: Summary of DOD?s Worldwide Military Family Housing, by Service

Note: Deficits exist at some installations, while surpluses exist at others.
Source: Military Family Housing Master Plans submitted to Congress.

The DOD Inspector General and GAO have previously reported that the services
use inaccurate housing market analyses when determining the need for
military housing. According to a July 1996 Inspector General report, the
requirements for seven military family housing projects at a Marine Corps
base were unsupported because the number of needed family housing units was
unknown. The report recommended that all of New Requirements

Process Likely to Identify Unneeded Housing Infrastructure

Page 9 GAO- 01- 889 Military Housing

these construction projects be placed on hold and that the Marine Corps
perform a new housing analysis to justify the family housing construction
projects. Although management concurred with the recommendations, the Marine
Corps proceeded with two of the projects. 8

We reported in 1996 that according to Army and Air Force information, many
military installations in the United States had not maximized the use of
private sector housing to meet military family housing needs. For example,
the Army?s housing requirements model estimated that 844 of Fort Eustis?
1,330 family housing units were surplus. If the model had matched housing
requirements against adequate private sector housing before matching them
against government housing, the model would have estimated that 1,170 of
these units were surplus. 9

The Department still does not maximize the use of private sector housing. As
part of its effort to develop a standard requirements- setting process, DOD
asked a contractor to perform housing market analyses at selected
installations. We reviewed the results of three of these market analyses.
Two of the three installations were projected to have substantial surpluses
once the private sector?s ability to provide housing was factored in. Based
on these analyses, over half (1,599 of 3,039) of the military houses at
these installations would be surplus. According to DOD housing officials,
the third base- a remote, rural installation- had a modest shortage of
military housing units.

Surplus military housing is the nearly inevitable result if the Department
starts by setting housing requirements based on the availability of private
sector housing for its members. Surplus housing identified by the proposed
process will be disposed of at the end of its useful life, according to DOD
housing officials. During the 5- year transition period, the housing
officials said the Department would avoid investments in surplus housing
units, but admitted that this would be difficult to do without firm
requirements.

Demand for military housing- evidenced by long waiting lists and high
occupancy rates- could be seen as evidence that military housing is

8 Quick- Reacting Report on Military Family Housing Construction at Marine
Corps Base Hawaii Kaneohe Bay (Inspector General Report No. 96- 200, July
1996). 9 Military Family Housing: Opportunities Exist to Reduce Costs and
Mitigate Inequities

(GAO/ NSIAD- 96- 203, Sept. 1996).

Page 10 GAO- 01- 889 Military Housing

needed and that DOD does not have surplus family housing. However, as we
have previously reported, waiting lists can be misleading because many
personnel on them do not accept military housing when offered because they
have already found suitable civilian housing while waiting. 10 One service?s
policy is to use occupancy rates to adjust the requirementssetting process:
for example, if an installation?s family housing is filled to capacity, all
of it must be needed. This rationale is not consistent with DOD?s stated
policy of relying on the private sector first. The services- through their
referral offices- guide military families to find housing and thus control
occupancy. Essentially, the referral offices offer military families a
choice between free military housing or an allowance for private sector
housing that generally does not cover the total cost of rent and utilities.
However, the planned increases in the housing allowance will gradually
remove the financial disincentive associated with civilian housing and
should make living off base more attractive.

Although the change in the housing allowance program is likely to decrease
the demand for military housing relative to civilian housing, there are
indications that the services are reluctant to reduce on- base family
housing. DOD has recognized the concerns among service leaders that housing
military personnel off installations in civilian housing would weaken the
sense of military community. However, as we said in our May 2001 report,
personnel live in military housing primarily because it is free and they
seek to avoid additional out- of- pocket costs associated with living in
civilian housing. According to a recent Rand report, members in focus groups
?scoffed? at the notion that living in military housing helped them to do a
better job. And only about 2 percent of servicemembers selected ?like having
military neighbors? as the first or second most important factor in the
decision to live in military housing. Rand concluded that most military
members simply do not see a compelling reason- beyond the economic benefit-
to live on base. 11

After meeting with each of the services to discuss the methodology for
determining housing requirements, the Center for Naval Analyses concluded
that a primary goal of the services seemed to be to protect their

10 Military Personnel: Higher Allowances Should Increase Use of Civilian
Housing, but Not Retention (GAO- 01- 684, May 2001). 11 An Evaluation of
Housing Options for Military Families (MR- 1020- OSD, 1999). Rand surveyed
military personnel, using a cluster sample of 4,400 military members at 12
bases across the country.

Page 11 GAO- 01- 889 Military Housing

current family housing inventories. 12 The services were concerned about how
any change in procedure would affect the number of on base family housing
units. The Center reported that the services want to retain their current
military housing, regardless of the new requirements- setting process.
Reasons for this include the prospect of large amounts of surplus housing,
and concerns about possible morale problems resulting from personnel being
forced to move into private sector housing. The Center?s report concluded
that increased service resistance to accept a procedural change that may
reduce the number of housing units has delayed the completion of formal DOD
guidance.

The increase in housing allowances has several advantages but makes the need
for a DOD- wide requirements- setting process more urgent. The Department
could more readily implement its policy to rely first on the private sector
to house service families because the additional out- ofpocket costs would
be eliminated by the increased housing allowance. Thus, the demand for
civilian housing is likely to increase, while the demand for military
housing should decrease. While costs for the increased housing allowance
appear substantial in the short term, evidence shows that it is cheaper for
the government to provide an allowance for private sector housing than to
provide a military house on base. Until the Department sets accurate housing
requirements DOD- wide, however, it could face mounting costs to maintain
its aging and in some places unnecessary housing infrastructure.

The housing allowance increase should allow DOD to better satisfy the
preferences of servicemembers. We have previously reported that, based on
the results of DOD?s 1999 Active Duty Survey, military members prefer
civilian housing if costs are equal. Of those currently receiving a housing
allowance or living in military housing, about 72 percent said they would
prefer civilian housing if costs were equal, while 28 percent said they
would prefer military housing. 13 In its 1999 report, Rand reported that
only about 20 percent of military members prefer military housing, and that
the predominant reason servicemembers live in military housing is for the
economic benefit. 14 Department officials also believe the housing

12 Housing Requirements Methodology: An Interim Report (Center for Naval
Analyses, Mar. 2001). 13 Military Personnel (GAO- 01- 684, May 2001).

14 Rand (MR- 1020- OSD, 1999). Increased Housing

Allowance Should Result in Reduced Need for on Base Family Housing

Page 12 GAO- 01- 889 Military Housing

allowance increase will ultimately change the composition of the population
in military housing. Rand?s analysis indicates that demographic
characteristics are the main factor in the demand for military housing.
Those who prefer military housing include lower income personnel (especially
junior enlisted personnel), those with spouses who do not work outside the
home, and those with a greater number of children. Military members with
larger families tend to be entitled to a larger residence in military
housing than they would be able to afford on the civilian market (housing
allowances increase by pay grade).

Regardless of whether DOD fully implements a private sector first policy,
the increase in housing allowance will add substantial costs to the housing
program in the near term. By 2005, the Department projects total costs to be
$12.8 billion, about 34 percent more than the $9.6 billion for fiscal year
2000 (see fig. 3). The amount allocated to the housing allowance program
will grow from $6 billion in fiscal year 2000 to over $8.8 billion in 2005,
about a $2.8 billion increase. The amount allocated for military family
housing is expected to grow from $3.5 billion in 2000 to about $4 billion in
2005.

Page 13 GAO- 01- 889 Military Housing

Figure 3: Military Family Housing and Allowances Cost, Excluding
Privatization (Fiscal Years 2000- 2005)

Note: Military housing estimates include costs for construction,
improvement, planning and design, operations, maintenance, and leasing of
military family housing units.

Source: DOD- provided data.

Considerable evidence suggests that providing a housing allowance is less
expensive and more flexible than providing a military house. In 1993, the
Congressional Budget Office estimated that DOD saved about $3,800 per family
by paying a housing allowance versus providing military housing. 15 In our
1996 report, we estimated that the military saved almost $5,000 per unit by
paying a housing allowance. 16 In its 1999 report, Rand said that all 12
installations they visited had paid more to provide military housing- from
$3,000 to $10,000 per unit. 17 Increasing the housing allowance will
somewhat narrow the savings that will result from putting personnel in

15 Military Family Housing in the United States (CBO, Sept. 1993). 16
Military Family Housing: Opportunities Exist to Reduce Costs and Mitigate
Inequities

(GAO/ NSIAD- 96- 203, Sept. 1996). 17 An Evaluation of Housing Options for
Military Families (MR- 1020- OSD, 1999).

Page 14 GAO- 01- 889 Military Housing

private sector housing instead of family housing on base. Admittedly, these
estimates are very rough and are not based on life- cycle costs. However,
DOD officials told us that they do not compute life- cycle costs nor do they
capture all overhead and other costs associated with military housing, since
they are absorbed in many places in the DOD budget. For example, military
housing has other significant costs associated with it, including the
associated infrastructure like schools, childcare, recreational facilities,
and other amenities on installations. Thus, DOD budget officials told us
that current funding figures tend to understate the cost of military
housing.

While these cost estimates are imprecise, it seems unlikely that the
government can provide housing cheaper than the private sector, which is
driven by market forces. Moreover, DOD housing officials told us that
maintaining family housing is not a core mission for the military services
and that family housing has been under- funded for many years. This, in
their view, is the reason why so much of the family housing stock is
inadequate today.

As the housing allowance increase is phased in- eliminating the financial
disincentive to living in civilian housing- demand for military housing is
likely to decrease. This decrease in demand for military housing reinforces
the need to implement a consistent housing requirements- setting process
quickly so that the Department of Defense and the Congress are assured that
the housing construction and privatization projects they review are
essential. Unless the Department can accurately determine the housing it
needs on its installations, it may spend funds for housing it does not, and
will not, need.

We recommend that you expedite the implementation of a consistent DOD- wide
process for establishing military housing requirements, ensuring that the
Department does not spend money on housing it does not need. Specifically,
we recommend you demonstrate the need for new construction, renovation, or
privatization projects using a process that consistently and adequately
considers the availability of civilian housing, before submitting requests
for funds for the projects to the Congress.

Under 31 U. S. C. 720, you are required to submit a written statement of the
actions taken on our recommendations to the House Committee on Government
Reform and to the Senate Committee on Governmental Affairs not later than 60
days from the date of this report and to the House Conclusions

Recommendations for Executive Action

Page 15 GAO- 01- 889 Military Housing

and Senate Committees on Appropriations with the agency?s first request for
appropriations made more than 60 days after the date of this report.

We provided a draft of this report to the Office of the Deputy Under
Secretary of Defense for Installations and Environment for comment. The
Deputy Under Secretary generally concurred with our conclusions and
recommendations. The Department and the military services have agreed that a
single, consistent method for determining military housing requirements is
needed. The Deputy Under Secretary noted that the Department has spent a
great deal of time and effort developing a process that would implement
DOD?s long- standing policy of relying on the civilian sector, but that
significant issues still need resolution. He cited concerns that a change in
the housing requirements process could result in divestiture of thousands of
homes before the housing allowance increase is fully phased in by 2005, but
noted that this is mitigated because the requirements- setting process under
consideration projects private- sector housing availability out 5 years. He
indicated that the Department recognizes some demand for on- base housing,
but to include an on- base housing demand factor in the housing requirements
process would inevitably require DOD to reverse or at least decrease its
reliance on the private sector. Rather, the Department?s housing inventory
must be validated through an auditable process that can project the extent
to which the private- sector housing around military installations can
support military families. We agree that considering demand for on- base
military housing would, in effect, reverse DOD?s long- standing policy to
rely on the private sector first and should therefore be avoided.

The Deputy Under Secretary partially concurred with our recommendation that
the Department demonstrate the need for new construction, renovation, or
privatization projects using a process that consistently and adequately
considers the availability of civilian housing, before submitting the
requests for funds for the projects to Congress. While recognizing that
funding the retention or construction of unneeded housing diverts resources
from other DOD priorities, he noted that the current amount of inadequate
housing argues for continuing military construction investment while the
requirements- setting process is finalized. We agree that some military
construction may be needed in locations where the private sector cannot
support the housing need, but the Department should carefully review
projects to ensure that the private sector cannot meet the housing need
before requesting funds from Congress. In our view, these long- standing
requirement- setting Agency Comments

and Our Evaluation

Page 16 GAO- 01- 889 Military Housing

weaknesses need to be addressed now. Otherwise, DOD risks spending millions
on infrastructure that it does not, or will not, need.

To determine whether DOD has implemented a standard process for determining
the need for military housing based on available private sector housing, we
held discussions with, and reviewed documents from, DOD housing officials
about the Department?s efforts to develop such a process. We reviewed
numerous past reports, including but not limited to, those from GAO, the
Department of Defense Inspector General, and the Center for Naval Analyses
documenting problems with the current processes used to establish military
housing requirements, and obstacles that must be overcome to implement a
standard Department- wide process.

To assess how the housing allowance increase will affect the need for
housing on military installations over the long term, we held discussions
with, and reviewed documents from, DOD officials of the Under Secretary of
Defense for the Comptroller; the Deputy Under Secretary of Defense for
Installations and Environment; and the Under Secretary of Defense for
Personnel and Readiness. We relied on data from past GAO and Rand reports.

We performed our work from January 2001 through June 2001 in accordance with
generally accepted government auditing standards. Scope and

Methodology

Page 17 GAO- 01- 889 Military Housing

We are sending copies of this report to appropriate congressional
committees. We will make copies available to others upon request. The report
will also be available at http:// www. gao. gov.

Please contact me at (202) 512- 5559 or William Beusse, Assistant Director,
at (202) 512- 3517 if you have any questions concerning this report. Major
contributors to this report were Jack Edwards, John Pendleton, and Matthew
Ullengren.

Sincerely yours, Derek B. Stewart Director Defense Capabilities and
Management

Appendix I: Recent Reports Concerning Military Housing

Page 18 GAO- 01- 889 Military Housing

Recently, several organizations have reported on the military family housing
program. The Congress, GAO, and the Department of Defense (DOD) Inspector
General have identified problems with the military services? methodologies
for developing housing requirements. Some have recommended that the
Department develop and implement a more consistent requirements process.
Table 1 provides a summary of the current problems and recommendations that
were made to the DOD to improve its requirements.

Table 1: Recent Reports Concerning Military Housing Title Findings

Military Personnel: Higher Allowances Should Increase Use of Civilian
Housing, but Not Retention (GAO- 01- 684, May 2001)

In May 2001, we reported that because 72 percent of military personnel
responded that they would prefer to live in civilian housing if costs are
equal, the Department?s initiative to increase the housing allowance for
personnel that live in civilian housing should satisfy servicemembers?
preference for housing. As a result, DOD should be in a better position to
implement its stated policy of relying on the private sector first for
housing.

Housing Requirements Methodology: An Interim Report, Center for Naval
Analyses (CAB D0003196. A2, Mar. 2001)

In March 2001, the Center for Naval Analyses assessed DOD?s effort to
develop standard military housing requirements- setting process. The report
stated that several open issues, such as standards for affordable housing
and acceptable commuting distances, remain unresolved between the services.
In addition, the report stated that the services appear to want to retain
the current level of on base housing regardless of the outcome from the new
housing requirements- setting process.

Military Housing: Continued Concerns in Implementing the Privatization
Initiative

(GAO/ NSIAD- 00- 71, Mar. 2000) In March 2000, we reported that although
initial privatization plans were aggressive,

actual progress had been slow. Some progress had been made in developing an
integrated housing strategy, but the Department had not yet balanced the
various housing options (military housing, housing allowances, and
privatization). At that time, DOD had just announced the proposal to
significantly increase the housing allowance. We reported that this proposal
made addressing lingering requirements problems even more important because
the services could not be assured that they were constructing, revitalizing,
or replacing housing only at installations where this was needed. We
recommended that the Secretary of Defense require that assessments of
housing requirements be updated before any privatization projects were
approved.

An Evaluation of Housing Options for Military Families, RAND (MR- 1020- OSD,
1999) In 1999, Rand reported that DOD should consider decreasing military
housing by

encouraging military members to live off base in private sector housing.
Rand found that the primary reason servicemembers choose to live in military
housing is the economic benefit. This dominated all other factors including
security, proximity to work, availability, better schools, and having
military neighbors. Rand concluded that increasing the housing allowance
could ultimately be tied to cost savings in operating fewer units on base
and avoiding the expense of replacing the existing housing stock.

Military Housing: Privatization Off to a Slow Start and Continued Management
Attention Needed (GAO/ NSIAD- 98- 178, July 1998)

In July 1998, we reported that the Department?s privatization initiative to
construct, revitalize, and maintain military housing was slow in starting,
and we raised concerns about the costs and long- term nature of some
contracts, up to 50 years in some cases. In addition, we reported that the
privatization initiative had not been fully integrated as part of an overall
housing strategy to meet DOD?s housing needs in an optimum manner and that
the Department still had not developed an accurate and consistent housing
requirements process. We noted that a more accurate process would show that
the communities around military installations could meet the housing
requirements for thousands of families. We recommended that the Secretary of
Defense direct the services to resolve long- standing inconsistencies in the
housing

Appendix I: Recent Reports Concerning Military Housing

Appendix I: Recent Reports Concerning Military Housing

Page 19 GAO- 01- 889 Military Housing

Title Findings

requirements determination process so that the Department?s stated policy of
relying on the private sector first to house military personnel could be
implemented.

An Evaluation of the Family Housing Requirements Process, Center for Naval
Analyses (CRM 97- 116, Jan. 1998)

In January 1998, the Center for Naval Analyses reported that the
methodologies used by the services to determine the requirements for
military construction were seriously flawed and were designed to project a
housing deficit.

DOD Family Housing Requirements Determination Audit Report (98- 006, Oct.
1997)

In October 1997, the DOD Inspector General reported that each of the
services had used different policies, processes, and procedures to
incorporate their particular needs into housing planning. The practices
varied significantly in cost and did not produce comparable results for
determining family housing requirements. The Inspector General recommended
that the Deputy Under Secretary of Defense (Installations) develop DOD
standard processes and procedures to determine family housing requirements.

Military Family Housing: Opportunities Exist to Reduce Costs and Mitigate
Inequities

(GAO/ NSIAD- 96- 203, Sept. 1996) In September 1996, we reported that DOD?s
policy of relying on the private sector to

house military personnel was cost- effective. We estimated that the
government spent about $5,000 less annually for each family that lived in
private instead of military housing. Further, we reported that DOD had not
maximized the use of the private sector to house military personnel partly
because DOD?s housing requirements analyses underestimated the private
sector?s ability to meet military housing needs. We recommended that the
Secretary of Defense reduce the level of military housing to the minimum
possible level.

National Defense Authorization Act for Fiscal Year 1996: Committee on
National Security House of Representatives (Report 104- 131, June 1995, at
282, 283).

In June 1995, the House National Security Committee stated its concern that
the means of acquiring and improving family housing and supporting
facilities for the armed services were not used in a consistent manner. The
Committee directed the Secretary of Defense to conduct a study of the
standards among the military departments and develop a common Department-
wide process to determine military housing deficiencies.

Appendix II: Comments From the Department of Defense

Page 20 GAO- 01- 889 Military Housing

Appendix II: Comments From the Department of Defense

Appendix II: Comments From the Department of Defense

Page 21 GAO- 01- 889 Military Housing (350086)

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