Military Family Housing: Opportunities Exist to Reduce Costs and Mitigate
Inequities (Chapter Report, 09/13/96, GAO/NSIAD-96-203).

Pursuant to a congressional request, GAO reviewed the Department of
Defense's (DOD) military family housing program to determine whether the
program: (1) is cost-effective; and (2) provides equal housing benefits
to all military families.

GAO found that: (1) DOD reliance on private-sector housing to meet
military family housing needs is cost-effective; (2) the government's
cost is significantly less when military families receive housing
allowances to live in private housing; (3) the cost difference for each
military family living in private housing ranges from $3,200 to $5,000
annually; (4) families living in private housing pay a portion of their
housing costs and have a greater selection of housing options to meet
their needs; (5) DOD is not maximizing its use of private housing due to
its reliance on inaccurate housing requirements, concerns with military
quality of life standards, reluctance to designate more government
housing for use by junior personnel, and inaccurate categorization of
affordable private housing; (6) the housing benefits afforded to service
members within the same paygrade differ depending on whether the members
live in government or private housing; (7) members living in private
family housing have less disposable income than members in the same
paygrade living in government family housing; (8) DOD has taken
initiatives to increase housing allowances and encourage private family
housing to reduce service members' reliance on government housing; and
(9) DOD needs to take additional steps to ensure the maximum use of
private housing and the equitable distribution of benefits among
military families.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  NSIAD-96-203
     TITLE:  Military Family Housing: Opportunities Exist to Reduce 
             Costs and Mitigate Inequities
      DATE:  09/13/96
   SUBJECT:  Military housing
             Cost effectiveness analysis
             Housing programs
             Privatization
             Military dependents
             Quality-of-life data
             Housing allowances
             Military cost control
             Military facilities
             Rental housing
IDENTIFIER:  DOD Military Family Housing Program
             DOD Variable Housing Allowance Program
             
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Cover
================================================================ COVER


Report to the Chairman and Ranking Minority Member, Subcommittee on
Personnel, Committee on Armed Services, U.S.  Senate

September 1996

MILITARY FAMILY HOUSING -
OPPORTUNITIES EXIST TO REDUCE
COSTS AND MITIGATE INEQUITIES

GAO/NSIAD-96-203

Military Family Housing

(703106)


Abbreviations
=============================================================== ABBREV

  CBO - Congressional Budget Office
  DOD - Department of Defense

Letter
=============================================================== LETTER


B-272416

September 13, 1996

The Honorable Dirk Kempthorne
Chairman
The Honorable Robert C.  Byrd
Ranking Minority Member
Subcommittee on Personnel
Committee on Armed Services
United States Senate

As requested, we reviewed the military family housing program in the
United States.  We found that the Department of Defense's policy of
relying primarily on private-sector housing to meet military family
housing needs is cost-effective.  However, the military services have
not taken full advantage of the significant savings available through
greater use of private housing. 

We are sending copies of this report to the appropriate congressional
committees; the Secretaries of Defense, the Army, the Navy, and the
Air Force; the Commandant, U.S.  Marine Corps; and the Director,
Office of Management and Budget. 

Please contact me at (202) 512-5140 if you have any questions.  The
major contributors to this report are listed in appendix III. 

Mark E.  Gebicke
Director, Military Operations
 and Capabilities Issues


EXECUTIVE SUMMARY
============================================================ Chapter 0


   PURPOSE
---------------------------------------------------------- Chapter 0:1

The Department of Defense (DOD) spends about $8 billion annually to
provide housing for military members and their families either by
paying a cash allowance for members to live in private-sector housing
or by assigning families to government-owned or -leased quarters. 
DOD policy states that private housing in the communities near
military installations will be relied on as the primary source of
housing and that government quarters may be programmed when the
communities cannot meet the military's need for acceptable and
affordable family housing.  Also, government housing is provided for
a small number of personnel that reside on an installation for
reasons of military necessity. 

At the request of the former Chairman and Ranking Minority Member of
the Subcommittee on Personnel, Senate Committee on Armed Services,
GAO reviewed DOD's military family housing program in the United
States to determine whether (1) DOD's policy of relying primarily on
private housing to meet military family housing requirements is
cost-effective, (2) the military services are complying with this
policy, and (3) DOD's family housing policies result in equitable
treatment for all military families. 


   BACKGROUND
---------------------------------------------------------- Chapter 0:2

About 605,000, or two thirds, of the military families in the United
States live in private housing.  These families receive cash housing
allowances to help defray the cost of renting or purchasing housing
in the communities near their installations.  Housing allowances,
which cost about $4.4 billion in fiscal year 1995, cover about 80
percent of the typical family's total housing costs, with the family
paying the remaining portion out of pocket using other sources of
income. 

The remaining 293,000, or one third, of the military families live in
government-owned or -leased housing.  These families forfeit their
housing allowances but pay nothing out of pocket for housing or
utilities.  In fiscal year 1995, DOD spent about $2.8 billion to
operate and maintain government-owned and -leased family housing.  In
addition, $724 million was authorized to construct and renovate
government family housing units in fiscal year 1995.  In fiscal year
1996, the authorization amount rose to $939 million. 

According to DOD, the majority of the existing inventory of
government- owned family housing is old; lacks modern amenities; and
needs major repair, renovation, or replacement.  DOD estimates that
over 200,000 of the existing houses do not meet current DOD
suitability standards and need to be fixed up or closed.  DOD
estimates that the cost to modernize the existing family housing
inventory is about $20 billion. 


   RESULTS IN BRIEF
---------------------------------------------------------- Chapter 0:3

DOD's policy of relying primarily on private-sector housing to meet
military family housing needs is cost-effective.  Studies by the
Congressional Budget Office and DOD have shown that compared to the
cost of providing military housing, the government's cost is
significantly less when military families are paid housing allowances
and live in private housing.  These studies and GAO's analysis
estimate that the cost difference to the government for each family
that lives in private housing ranges from about $3,200 to $5,500
annually.  The government's cost is less primarily because families
living in private housing pay a portion of their housing costs and
the government pays significantly less federal school impact aid for
military dependents that live in private housing, which is subject to
local property taxes. 

Although the DOD housing policy is cost-effective, DOD and the
services have not taken full advantage of this policy.  Data reported
by the services and GAO's analysis show that the communities
surrounding many military installations could meet thousands of
additional family housing needs.  Yet, the services continue to
operate old housing that does not meet suitability standards and, in
some cases, improve or replace government housing at such
installations.  As a result, opportunities for reducing housing costs
have been lost because DOD has not taken advantage of the significant
savings available from use of private housing. 

DOD has not maximized use of private housing for a variety of
reasons, including (1) a reliance on housing requirements analyses
that often underestimate the private sector's ability to meet family
housing needs; (2) a concern over quality of life, although there is
little quantitative evidence that family quality of life is better
served through government housing; (3) a reluctance to designate more
government housing for use by junior personnel who are less able to
afford private housing than senior personnel; and (4) a housing
allowance system that results in available private housing being
considered unaffordable in some areas. 

The family housing program also allows significant differences in the
housing benefit provided to service members of the same paygrade
depending on whether they live in government or private housing.  As
a result of differences in the out-of-pocket costs paid for housing,
members that live in private family housing typically have less
disposable income than members of the same paygrade that live in
government family housing. 

Recent DOD initiatives to increase housing allowances and to
encourage private investors to build housing for military families
have the potential for reducing reliance on government housing. 
However, to minimize housing costs, additional steps are needed to
ensure that maximum use of private housing is made before renovating
or replacing government housing that has reached the end of its
economic life.  Changes also are needed in the housing program to
make the benefits provided to service members and their families more
equitable. 


   PRINCIPAL FINDINGS
---------------------------------------------------------- Chapter 0:4


      RELYING FIRST ON PRIVATE
      HOUSING IS COST-EFFECTIVE
-------------------------------------------------------- Chapter 0:4.1

GAO's cost comparison of government-owned and private-sector family
housing units in fiscal year 1995 showed that the government spent an
average of $4,957 less for each family that lived in private housing. 
The difference resulted because a typical family living in private
housing paid $2,016 of its housing costs out of pocket and the
government paid $1,416 less in school impact aid because private
housing is subject to local taxes.  The remaining amount represents
the estimated difference in the annual cost of a housing unit
constructed, operated, and maintained by the military and a unit
constructed, operated, and maintained by the private sector. 

In addition to being cost-effective, there are other advantages to
relying on private housing.  In the current environment of
constrained defense budgets, the short-term flexibility offered by
housing allowances appears preferable to the long-term commitments
required by military construction.  Housing allowances also can offer
military members a greater selection of housing options to fit their
needs instead of limiting them to what is available in military
housing. 


      DOD HAS NOT MAXIMIZED USE OF
      PRIVATE HOUSING
-------------------------------------------------------- Chapter 0:4.2

Information reported by the Army and the Air Force shows that many
military installations in the United States have not maximized use of
private housing to meet military family housing needs.  The Army
reports that over 34,000 government family units at 59 Army
installations are surplus--meaning that the communities near these
installations have available, adequate housing to meet these
requirements.  The Air Force reports that over 4,000 government units
at 13 Air Force installations are surplus.  The Navy and the Marine
Corps did not accumulate comparable housing information on their
installations. 

GAO found evidence that the private sector could meet significantly
more of the military's family housing needs than the numbers reported
by the services.  For example, the services often relied on the
results of housing requirements analyses that showed private-sector
housing was unavailable.  Yet, the analyses used methodologies that
understated housing availability in the private sector and that
tended to result in a self-perpetuating requirement for government
housing.  GAO's evaluation of the housing requirements analyses for
the 21 installations included in its review showed that methodology
problems understated the ability of the private sector to meet
military needs at 13 installations. 

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 private-sector housing
units before matching them against government housing units, the
model would have estimated that 1,170 government units were surplus,
an increase of
326 units that could be closed rather than replaced when they reach
the end of their economic life.  The Langley Air Force Base housing
analysis reported that 398 of the installation's 1,606 government
housing units would be surplus in the year 2000.  However, the
analysis assumed that only 888 of 7,727 forecasted vacancies in the
private sector would be available to Langley military families.  If
the analysis had assumed that more vacancies were available to
Langley families, the analysis would have predicted that the private
sector could meet all of Langley's family housing needs. 


      HOUSING PROGRAM CONTAINS
      INEQUITIES FOR MILITARY
      FAMILIES
-------------------------------------------------------- Chapter 0:4.3

The nontaxable housing benefit provided by DOD's housing program is
an important part of the military compensation package.  However,
when viewed from a compensation perspective, the program allows
significant differences in the value of the housing benefit provided
to service members of the same paygrade depending on whether they
live in private or government housing.  For example, two thirds of
all military families in the United States own or rent housing in the
private sector and typically pay 20 percent of their housing costs
out of pocket because the housing allowance covers about 80 percent
of private-housing costs.  The other one third of military families
live in government housing and forfeit their housing allowances but
pay no out-of-pocket costs for housing and utilities. 

Because of the difference in out-of-pocket costs, service members of
the same paygrade that perform the same job for the military can have
different amounts of disposable income depending on whether they live
in private or government housing.  To illustrate, a typical paygrade
E-6 family that lives in private housing pays $2,050 out of pocket
annually for housing costs.  In contrast, another paygrade E-6 family
that lives in government housing pays no out-of-pocket costs for
housing and, therefore, will have $2,050 more each year to use for
other purposes.  Similarly, a paygrade O-4 family that lives in
private housing typically spends $2,760 out of pocket for housing
each year.  Another paygrade O-4 family that lives in government
housing pays no out-of-pocket housing costs and can use the $2,760
for other purposes. 


   RECOMMENDATIONS
---------------------------------------------------------- Chapter 0:5

GAO recommends that the Secretary of Defense establish a long-term
goal to reduce the use of government family housing in the United
States to the minimum possible level.  The goal should limit
government housing to families assigned to locations where no
adequate private-housing alternative exists and to the small number
of families that reside on base for military necessity.  GAO also
recommends that the Secretary develop plans to reduce the difference
in the average amounts paid for housing by families of service
members in the same paygrade by requiring families that live in
government housing pay a portion of their housing costs.  To avoid
reducing total military housing benefits, GAO notes that the income
generated from families living in government housing could be used to
fund an offsetting increase in housing allowances. 

GAO makes further recommendations in chapter 5 to improve the housing
requirements determination process, the information available on
member housing preferences, and the availability of government
housing for junior personnel. 


   AGENCY COMMENTS
---------------------------------------------------------- Chapter 0:6

DOD partially concurred with the report.  At locations where adequate
private housing is available, DOD stated that it will not support
construction of new government housing and will carefully review
proposals to replace deteriorated government housing.  DOD also
stated that it is pursuing initiatives to promote greater private
investment in housing for military families and is studying potential
changes to the housing allowance program that could result in
correcting housing inequities and other problems.  Further, DOD
stated that it plans to revisit procedures for determining housing
requirements and has chartered a study that will address the
relationship between quality of life and family housing. 

DOD did not agree with GAO'S draft recommendation to equalize the
average amounts paid by service members living in private and
government housing.  DOD stated that requiring the one third of
military members that live in government housing to pay a portion of
their housing costs would reduce their benefits, and as a result,
could have severe consequences for military retention and readiness. 
DOD also stated that it would cost too much to equalize the average
amounts paid for housing by eliminating the out-of-pocket costs for
the two thirds of military members that live in private housing. 

GAO agrees that the recommendation would have an adverse impact on
the military families that live in government housing since they
would begin paying a small portion of their housing and utility
costs.  However, allowing the housing compensation inequity to
continue also has adverse impacts, such as increasing demand for
government housing even in areas where private housing is available. 
GAO also notes that, because out-of- pocket costs paid by families
living in government housing could be used to fund offsetting
increases in housing allowances, housing benefits for the two thirds
of military families that live in private housing actually could
increase.  To clarify the intent of the recommendation and to ease
its impact by allowing time for phased implementation, GAO changed
the recommendation to say that DOD should reduce, rather than
equalize, the difference in the average amounts paid for housing by
requiring families that live in government housing pay a portion of
their housing costs. 


INTRODUCTION
============================================================ Chapter 1

The Department of Defense (DOD) spends about $8 billion annually to
provide housing for families of active-duty military personnel. 
Seeking to provide military families with access to adequate,
affordable housing, DOD either pays a cash allowance for families to
live in private-sector housing or provides housing by assigning
families to government-owned or government-leased units.  The housing
benefit is a major component of the military's compensation package. 

DOD policy manual 4165.63M states that private-sector housing in the
communities near military installations will be relied on as the
primary source of family housing.  The policy states that government
housing may be programmed when the local communities cannot meet the
military's need for acceptable and affordable housing.\1 Government
housing is also provided for a small number of personnel, often fewer
than 15, that reside on an installation for reasons of military
necessity.  DOD policy further states that installation commanders
are responsible for the housing program at their installations and
have broad authority to plan, program, and determine the best use of
resources. 


--------------------
\1 The minimum DOD standards for private-sector housing to be
considered acceptable and affordable include (1) the unit must be
within a 1-hour commute by privately owned vehicle during normal
commuting hours; (2) the unit must not be in an area designated by
the installation commander as not acceptable for health or safety
reasons; (3) the unit's total monthly housing cost must not exceed
the total of 150 percent of the member's basic allowance for quarters
plus the variable housing allowance; and (4) the unit must be
structurally sound and have at least one full bathroom and a kitchen
and meet other specific standards such as square footage minimums,
access to laundry facilities, and electrical, heating, cooling, and
sanitation requirements. 


   MILITARY FAMILIES LIVING IN
   PRIVATE HOUSING
---------------------------------------------------------- Chapter 1:1

About 605,000, or two thirds, of the military families in the United
States live in private housing.  These families receive cash housing
allowances to help defray the cost of renting or purchasing housing
in the communities near their installations.  Housing allowances,
which totaled about $4.4 billion in fiscal year 1995, cover about 80
percent of the typical family's total housing costs, including
utilities.  The families pay the remaining portion of their housing
costs out of pocket using other sources of income.  Military families
receive assistance in locating private housing from housing referral
offices operated at each major installation. 

Housing allowances consist of the basic allowance for quarters and
the variable housing allowance.  The basic allowance amount varies by
military paygrade and is paid to all service members in the United
States that do not occupy government quarters.  The variable
allowance varies by paygrade and by geographic location and is paid
to members who receive the basic allowance and live in high-cost
areas of the United States.  The variable housing allowance was
designed to equalize members' out-of-pocket housing costs across
locations in the United States. 

In 1985, the Congress adjusted housing allowances so that the out-of-
pocket costs would be 15 percent of average housing costs.  However,
the typical out-of-pocket amount today is about 20 percent because
increases in housing allowances have not kept pace with housing
costs. 


   MILITARY FAMILIES LIVING IN
   GOVERNMENT HOUSING
---------------------------------------------------------- Chapter 1:2

The remaining 293,000, or one third, of the military families in the
United States live in government-owned or -leased housing.  These
families forfeit their housing allowances but pay no out-of-pocket
costs for housing or utilities.  In fiscal year 1995, DOD spent about
$2.8 billion to operate and maintain government-owned and -leased
family quarters.  In addition, about $724 million was authorized to
construct and renovate government family housing units in fiscal year
1995.  In fiscal year 1996, the authorization amount increased to
$939 million. 

According to DOD, the majority of the existing inventory of
government- owned family housing is old; lacks modern amenities; and
needs major repair, renovation, or replacement.  DOD estimates that
over 200,000 of the existing houses do not meet current suitability
standards\2 and need to be fixed up or closed.  DOD estimates that
the cost to modernize the existing family housing inventory is about
$20 billion. 

Table 1.1 summarizes by service the number of families living in
private-sector and government housing. 



                               Table 1.1
                
                    Military Families in Private and
                           Government Housing
                         (as of Sept. 30, 1995)


                            Number     Percent      Number     Percent
----------------------  ----------  ----------  ----------  ----------
Army                       201,300        63.8     114,200        36.2
Navy                       194,500        77.9      55,200        22.1
Air Force                  154,600        61.4      97,200        38.6
Marine Corps                54,900        67.4      26,500        32.6
======================================================================
Total                      605,300        67.4     293,100        32.6
----------------------------------------------------------------------

--------------------
\2 Current suitability standards for government family housing units
include a separate family room and a separate bathroom off the master
bedroom in all three-, four-, and five-bedroom units; a half bath on
the first floor of two-floor units; vanity-style lavatories in all
bathrooms; a separate enclosed washer/dryer space; a refrigerator,
range, microwave oven, garbage disposal, and dishwasher; a carport or
garage; bulk storage space; and specific living space square footage
criteria by paygrade. 


   MANAGEMENT OF THE FAMILY
   HOUSING PROGRAM
---------------------------------------------------------- Chapter 1:3

Separate DOD organizations manage the two key components of the
family housing program--allowances and government housing.  Housing
allowances are the responsibility of the Under Secretary of Defense
for Personnel and Readiness and primarily are managed centrally at
DOD headquarters by the organization responsible for all compensation
issues, including basic pay and other types of allowances.  This
organization is the focal point for policy matters and initiatives
related to housing allowances. 

Government-owned and -leased housing is the responsibility of the
Under Secretary of Defense for Acquisition and Technology.  Although
DOD headquarters establishes overall management policy for government
housing, primary management responsibility is delegated to the
individual services, their major commands, and individual
installations.  As the nation's largest landlord, the DOD
infrastructure supporting the oversight, operation, maintenance, and
construction of government family housing is very large, involving
many thousands of government and contract employees. 


   FAMILY HOUSING INITIATIVES
---------------------------------------------------------- Chapter 1:4

DOD recently placed increased emphasis on improving the quality of
life of military members and their families.  Because housing is
viewed as a key factor affecting quality of life, DOD initiated plans
to improve the family housing program.  For example, with the support
of the Congress, housing allowances were increased for fiscal year
1996 to reduce the average out-of-pocket amounts paid for housing in
the civilian community.  Increased funding also was approved for
construction and modernization of government housing units.  The
Congress is considering similar actions for fiscal year 1997. 

Recognizing that the majority of existing government housing units
are old and need major improvements, the Congress also approved DOD's
request for new authorities in fiscal year 1996 to test ways to
encourage private developers to build and improve housing that would
be available to the military.  By promoting use of private capital,
the goal is to improve military housing more quickly than could be
achieved through normal military construction funding.  DOD
established the Housing Revitalization Support Office to oversee
implementation of the new program, and the first projects are
expected to be approved by the end of fiscal year 1996. 

In an October 1995 report, the Defense Science Board Task Force on
Quality of Life reported that the military's housing delivery system
was intrinsically flawed.  Among many recommendations to improve the
housing program, the task force recommended establishment of a
military housing authority to manage DOD housing using private
housing industry management principles and practices.  DOD has
evaluated the report and has begun planning to implement some of the
recommendations such as improved housing referral services.  DOD did
not have immediate plans to request authority to implement a military
housing authority. 


   OBJECTIVES, SCOPE, AND
   METHODOLOGY
---------------------------------------------------------- Chapter 1:5

We reviewed DOD's military family housing program in the United
States to determine whether (1) DOD's policy of relying primarily on
private housing to meet military family housing requirements is
cost-effective, (2) the military services are complying with this
policy, and (3) DOD's family housing policies result in equitable
treatment for all military families. 

We performed our review at the DOD, Air Force, Army, Navy, and Marine
Corps headquarters offices responsible for overseeing housing
allowances and for managing military family housing.  We also
performed work at the Housing Revitalization Support Office; the Per
Diem, Travel and Transportation Allowance Committee; the DOD offices
responsible for quality of life issues, retention, and recruitment;
the Air Force's Air Combat Command; the Army's Training and Doctrine
Command; the Commander-in-Chief, Atlantic Fleet; and the Naval
Facilities Engineering Command, Atlantic and Southwest Divisions.  At
each location, we interviewed responsible agency personnel and
reviewed applicable policies, procedures, and documents. 

We obtained and analyzed detailed housing requirements and
availability information from 21 Air Force, Army, Navy, and Marine
Corps installations that manage government housing.  The 21
installations were selected judgmentally to obtain a cross section of
installations by service, by geographic location, and by reported
family housing availability.  We also included 6 of the 10
installations identified by DOD in May 1995 as areas with the
greatest shortfall of affordable housing.  We visited 8 of the
21 installations, 2 from each service, to review in greater depth the
family housing conditions at each installation, including family
housing requirements, available private-sector and government
housing, housing referral services, and government housing
construction and renovation plans.  We also toured government-owned
housing at these installations.  Appendix I identifies the
installations included in our review. 

To determine the cost-effectiveness of DOD's policy of relying
primarily on private-sector housing, we compared the government's
reported costs for families to live in private housing with the
government's reported costs for families to live in government
quarters.  To do this, we reviewed prior DOD and other agency reports
on military housing costs and analyzed reported military costs for
each housing alternative in fiscal year 1995. 

To determine the military services' compliance with the DOD housing
policy of relying on private housing, we analyzed Army and Air Force
summary data on installation family housing requirements, civilian
housing availability, and government-owned housing inventories.  The
Navy and the Marine Corps did not accumulate comparable data.  We
also reviewed the family housing situation in detail at the 21
selected installations to determine whether the installations were
relying first on private-sector housing to meet military housing
requirements.  For installations that did not appear to be in
compliance with the DOD policy, we explored the reasons for
noncompliance. 

To determine whether DOD's family housing policies result in
equitable treatment for all military families, we compared housing
costs for military families that live in private housing and in
government housing.  We also reviewed the government's reported cost
of the housing benefit provided to service members in the same
paygrade when living in private and government housing. 

Our review was performed between May 1995 and June 1996 in accordance
with generally accepted government auditing standards. 


RELYING ON PRIVATE HOUSING IS
COST-EFFECTIVE
============================================================ Chapter 2

Studies by the Congressional Budget Office (CBO) and DOD show that
the cost to the government is significantly less when military
families are paid a housing allowance and live in private housing. 
These studies and our analysis estimate that the cost difference to
the government for each family that lives in private housing, instead
of government housing, ranges from about $3,200 to $5,500 annually. 
The difference is primarily due to three reasons.  First, the
government pays about 80 percent of the housing costs for a family
that lives in private housing compared to paying 100 percent for a
family in government housing.  Second, the government pays
significantly less federal school impact aid for military dependents
when they live in private housing, which is subject to local property
taxes.  Third, the private sector generally can build, operate, and
maintain a family housing unit at less cost than the government. 


   FACTORS LEADING TO DOD'S FAMILY
   HOUSING POLICY
---------------------------------------------------------- Chapter 2:1

Prior to the 1960s, military personnel normally lived in government
housing.  Most enlisted personnel were single and lived in government
barracks, and married officers of sufficient rank usually lived in
government family housing.  However, the advent of the Cold War with
a large peacetime military force, decisions to make government family
housing available to most married personnel, and a significant
increase in the percentage of married enlisted personnel resulted in
a tremendous increase in the demand for military family housing. 

The majority of DOD's current family housing inventory was built
between the late 1950s and the late 1960s to help meet this increased
housing demand.  But DOD recognized that it could not afford to
construct enough housing for all personnel with dependents.  Thus, in
the mid-1960s, DOD adopted the policy of relying primarily on
private-sector housing in areas where affordable housing was
available and paying service members allowances to help defray their
housing costs. 


   USE OF PRIVATE HOUSING REDUCES
   GOVERNMENT COSTS
---------------------------------------------------------- Chapter 2:2

In 1993, CBO issued a report on military family housing in the United
States that addressed many issues related to reducing the cost of the
family housing program.\1 The report included an analysis comparing
the average annual cost of a military housing unit with the cost of a
private-sector housing unit obtained by a military family.  The
comparison showed that in the long run the government spent $5,500
more annually when military housing was provided instead of paying an
allowance for a family to live in private-sector housing. 

In response to the report, DOD performed an analysis comparing the
same costs.  Because of some differences in the assumptions and data
used for some cost elements such as long-term capital investment and
school impact aid costs, the DOD estimates differed somewhat from the
CBO study.  However, DOD also concluded that the reduced costs to the
government by using private-sector housing was significant--about
$3,200 per family annually. 

Key details of the two analyses are shown in table 2.1. 



                               Table 2.1
                
                CBO and DOD Estimates of Annual Costs to
                   the Government for Government and
                            Private Housing


--------------------------------------  ------  ------  ------  ------
Cost of government housing unit
----------------------------------------------------------------------
Operation and maintenance               $6,200          $6,505
Capital investment and land              4,900           2,803
School impact aid                        1,900           1,478
======================================================================
Total cost to the government                    $13,00          $10,78
                                                     0               6

Cost of private housing unit
----------------------------------------------------------------------
Housing allowance                       $7,500          $7,506
School impact aid                            0              62
DOD referral services                        0              37
======================================================================
Total cost to the government                    $7,500          $7,605
Cost difference to the government               $5,500          $3,181
----------------------------------------------------------------------
A primary reason for the cost difference is that military families
pay a portion of the housing costs out of pocket when they live in
private housing.  Families living in private housing typically pay
about 20 percent of their housing costs out of pocket because housing
allowances cover about 80 percent of average housing costs.  CBO
estimated that a family's out-of-pocket cost would be $1,700 annually
and DOD estimated the cost would be $1,929.  The out-of-pocket amount
must be paid from other sources, such as other military compensation
or spousal income.  Families living in government quarters do not pay
out-of-pocket costs because the military pays all housing and utility
costs. 

The difference in federal impact aid paid by the Department of
Education and DOD is another key factor explaining the difference in
the costs to the government.  Impact aid is paid to local governments
to help cover the cost of educating dependents of military members. 
The impact aid for each dependent is significantly higher for
students that live with their families in government quarters because
government housing is not subject to local property taxes.  When
military families live in private housing, a much smaller amount is
paid for each student because the housing unit is subject to local
property taxes. 

The CBO analysis found a third factor contributing to the difference
in government housing costs.  For a variety of reasons, CBO and
others have concluded that the private sector can build, operate, and
maintain housing more economically than DOD.  For example, table 2.1
shows that CBO estimated that the cost of a government housing unit,
excluding school impact aid, was $11,100 annually.  In comparison,
the estimated annual cost of a private housing unit was $9,200. 
(This amount is the sum of the housing allowance and the
out-of-pocket cost.) According to CBO, the difference of $1,900
represents the extra costs that the military incurs to deliver a
housing unit and is caused by the government's long planning and
budgeting cycle, project oversight costs, higher labor costs, and
detailed regulations and constraints on housing design and
construction. 


--------------------
\1 Military Family Housing in the United States.  CBO, Sept.  1993. 


   ANALYSIS OF FISCAL YEAR 1995
   HOUSING COSTS
---------------------------------------------------------- Chapter 2:3

We performed a similar analysis using fiscal year 1995 costs.  The
analysis showed that the government spent $4,957 less annually for
each family that lived in private housing (see table 2.2).  We based
our estimate of the cost of a government housing unit on reported DOD
operation and maintenance costs for fiscal year 1995 and DOD's
estimates of the costs for capital investment, school impact aid, and
referral services.  We based our estimate of the cost of a private
housing unit on the reported housing allowances paid in that year and
DOD's estimates of the costs for school impact aid and referral
services. 



                               Table 2.2
                
                  Our Estimate of Annual Costs to the
                 Government for Government and Private
                                Housing


--------------------------------------------------  --------  --------
Cost of government housing unit
----------------------------------------------------------------------
Operation and maintenance                             $8,092
Capital investment and land                            2,803
School impact aid                                      1,478
======================================================================
Total cost to the government                                   $12,373

Cost of private housing unit
----------------------------------------------------------------------
Housing allowance                                     $7,317
School impact aid                                         62
DOD referral services                                     37
======================================================================
Total cost to the government                                    $7,416
Cost difference to the government                               $4,957
----------------------------------------------------------------------
Similar to the results of the CBO analysis, our analysis also shows
that there are three primary causes for the cost difference to the
government.  First, military families pay a portion of their housing
costs out of pocket when living in private-sector housing.  We
estimated that these costs would amount to $2,016 in fiscal year
1995.  Second, the government pays more school impact aid when
military dependents live in government housing.  Third, the
government's cost is greater than the private sector's cost to
deliver a family housing unit. 


DOD HAS NOT MAXIMIZED USE OF
PRIVATE HOUSING
============================================================ Chapter 3

Although DOD's policy of relying first on private housing to meet
military family housing needs is stated in military housing
instructions and is cited in congressional hearings on military
housing, DOD and the services have not taken full advantage of the
policy.  Until the recent introduction of new initiatives to
encourage private investment in military housing, DOD had placed
little emphasis on increasing reliance on private housing.  Instead,
even at installations where surrounding communities can meet
additional military housing needs, the services continue to operate
old housing that does not meet suitability standards and, in some
cases, improve or replace government housing.  As a result,
opportunities for reducing housing costs have been lost because DOD
has not taken advantage of the significant savings available from use
of private housing. 

DOD and the services have not maximized use of private housing for a
variety of reasons, including a reliance on housing requirements
analyses that often underestimate the private sector's ability to
meet family housing needs; a concern over quality of life, although
there is little evidence that family quality of life is better served
through use of government housing; a reluctance to designate a
greater portion of existing government housing for use by junior
personnel who are less able to afford private housing than senior
personnel; and a housing allowance system that results in available
private housing being unaffordable in some areas. 

Current initiatives to increase housing allowances and to encourage
private investors to build housing for military families have the
potential for reducing costs while meeting military family housing
needs.  However, additional steps are needed to ensure that maximum
use of private housing is made before renovating or replacing
government housing that has reached the end of its economic life. 


   ADDITIONAL PRIVATE HOUSING IS
   AVAILABLE
---------------------------------------------------------- Chapter 3:1

Information reported by the Army and the Air Force shows that many
military installations in the United States have not maximized the
use of private housing to meet military family housing needs.  For
example, the Army reports that over 34,000 government family units at
59 Army installations are occupied but are considered
surplus--meaning that the communities near these installations have
available and affordable housing that could meet these requirements. 
To illustrate, the Army reports that Forts Knox, Polk, and Eustis
have 3,387, 2,422, and 824 surplus government housing units,
respectively.  Similarly, the Air Force reports that over 4,000
government units at 13 Air Force installations are surplus.  For
example, Andrews, Langley, and Seymour Johnson Air Force Bases have
985, 398, and 262 surplus housing units, respectively. 

The Navy and the Marine Corps do not accumulate comparable summary
housing information for their installations.  However, housing
referral officials at some Navy and Marine Corps installations
included in our review stated that affordable private housing was
readily available in the local civilian communities.  For example,
housing referral officials at Cherry Point Marine Corps Air Station
stated that the civilian communities near the installation had
hundreds of available and affordable family housing units.  Referral
officials at the Norfolk naval complex stated that the local
community could support additional housing needs for officers that
currently live in government quarters. 


   REQUIREMENTS ANALYSES
   UNDERSTATE PRIVATE SECTOR'S
   ABILITY TO MEET HOUSING NEEDS
---------------------------------------------------------- Chapter 3:2

Although the services report some surplus government housing units,
our analyses indicate that the private sector can meet significantly
more of the military's family housing needs.  We found that systemic
problems in the housing requirements determination process can
understate the private sector's ability to meet military needs and
result in a self-perpetuating requirement for government housing,
even at locations where affordable private housing is available. 

Our evaluation of the services' housing requirements analyses for the
21 installations included in our review showed that methodology
problems understated the private sector's ability to meet military
needs for
13 installations.  As a result, the installations planned to continue
operating and, in some cases, improve government housing instead of
saving money by relying more on private-sector housing. 


      HOUSING REQUIREMENTS
      ANALYSES
-------------------------------------------------------- Chapter 3:2.1

The services periodically perform housing analyses for each major
installation to forecast military housing requirements and the
availability of government and private housing units to meet the
requirements.  Each analysis normally includes a detailed estimate of
the installation's housing requirements considering individual
paygrade and bedroom needs based on family size.  The services'
analyses estimates and compares military family housing requirements
with the inventory of government-owned and -leased housing and with
the estimated number of available private housing units that meet the
military's criteria for suitability and affordability.  The process
predicts whether an installation will have a housing surplus or
deficit in the near future.  Predicted deficits can form the basis
for justifying government housing construction and renovation
projects.  Predicted surpluses can indicate a need to close
government units. 

The housing analysis process is complex because many variables are
considered and because each analysis attempts to predict future
housing needs and housing availability.  Also, the services use
different methods to compute housing requirements.  The Army
determines requirements centrally for all installations using a
computer model.  The Air Force, the Navy, and the Marine Corps use
private contractors to perform housing analyses for each
installation. 


      METHODOLOGY PROBLEMS IN THE
      REQUIREMENTS DETERMINATION
      PROCESS
-------------------------------------------------------- Chapter 3:2.2

We found two key methodology problems in the military's housing
requirements process that tend to perpetuate the need for government
housing, including housing that does not meet DOD's suitability
standards, by understating the private sector's ability to meet
military needs.  The first problem is that the housing analyses match
military family housing requirements against government housing units
before considering private housing units.  Regardless of the private
sector's ability to meet military housing needs, private-sector
housing is considered only if housing deficits remain after the
government housing inventory is fully used.  The second problem is
that many housing analyses assume that only a small portion of a
community's vacant rental units will be available for military
families to occupy.  As a result, the analyses underestimate private
housing availability because they exclude from consideration hundreds
of suitable vacant units. 

From a requirements determination perspective, matching housing needs
against government housing units, including those that DOD considers
unsuitable, before available private housing units is inconsistent
with DOD's policy of relying first on the private sector.  For
example, if all family housing requirements can be met by government
housing units, then private-sector housing is not considered, even
though private housing may have been sufficient to meet some, or even
all, of the military's requirements.  This situation can result in a
self-perpetuating requirement for government housing.  The following
examples illustrate the problem. 

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 private-sector housing before
matching them against


government housing, the model would have estimated that 1,170
government units were surplus, an increase of 326 surplus units that
could be closed rather than replaced when they reach the end of their
economic life.  Fort Eustis officials stated that most of the
installation's housing was old and did not meet current suitability
standards.  At the time of our visit in July 1995, Fort Eustis had
ongoing projects to demolish 367 housing units constructed in the
1950s and to upgrade 8 senior officer quarters.  The officials
estimated that it would cost about $42 million to improve the
remaining housing inventory. 

At Fort Knox, the Army's model estimated that 3,273 of the 4,364
family housing units were surplus.  However, if housing requirements
had been matched against private-sector housing before matching them
against government housing, the model would have estimated that 3,878
government units were surplus, an increase of 605 surplus units. 
During our visit in April 1996, Fort Knox officials stated that most
of the installation's housing was old and did not meet current
suitability standards.  They stated that they planned a net reduction
of 812 government units by the year 2000 and would like to bring the
remaining government housing inventory up to current standards at a
cost of about $127 million. 

Army headquarters officials stated that they have decided to change
their model so that military requirements are matched first against
private-sector housing.  The officials stated that the change will
result in reporting a greater number of surplus government housing
units and will help Army officials identify installations where old
government housing units could be closed to save operating costs. 
Air Force, Navy, and Marine Corps officials did not indicate that
they planned to change the requirements determination process to
consider private-sector housing first. 

The second problem in the requirements determination process that can
understate the private sector's ability to meet military housing
needs is the methods that are used to estimate how many vacant rental
units will be available to military families.  The Air Force and
other housing experts consider that the natural rental vacancy rate
in most markets is about 5 percent.  This vacancy rate provides for
vacancies caused by normal rental turnover and by rental units
undergoing repairs or renovations.  Vacant rental units above the
5-percent level often are called excess vacancies and normally are
considered available for rent. 

Air Force officials stated that all suitable excess vacancies should
be considered as being available to the military.  However, the
market analyses for five of the six Air Force installations included
in our review concluded that only a small portion of the suitable
excess vacancies would be available to military families.  Similarly,
the market analyses for six of the nine Navy and Marine Corps
installations included in our review concluded that only a small
portion of the suitable excess vacancies would be available to
military families.  The Army's model does not predict the existence
of excess vacancies because the model assumes that in the long run,
rental housing supply will match rental housing demand.  The
following examples illustrate the problem with Air Force, Navy, and
Marine Corps analyses. 

The Langley Air Force Base market analysis reported that 398 of the
installation's 1,606 government housing units would be surplus in the
year 2000.  However, the analysis estimated that only 888 of 7,727
suitable excess vacancies in the private sector would be available
and affordable to Langley families in that year.  The analysis
assumed that the remaining vacancies would be available to families
from nearby Army and Navy installations.  However, the requirements
analyses from these installations estimated that they would only use
1,223 rental vacancies.  If the Langley analysis had assumed that
most of the remaining suitable and affordable excess vacancies were
available to Langley families, the analysis would have predicted that
the private sector could meet all of Langley's family housing needs. 

Langley officials stated that most of the installation's housing did
not meet current suitability standards.  In 1994, an Air Force
contractor estimated that improving the housing to current standards
would cost $99 million.  At the time of our visit to Langley in
August 1995, an $8.5-million project was underway to renovate 144
family units.  Another project, which will cost about $16 million,
had begun to replace 180 family units constructed in 1976 with 148
new units.  Although only about 20 years old, Langley officials
stated the units being demolished had experienced maintenance
problems and did not meet current suitability standards. 

The Cherry Point Marine Corps Air Station market analysis reported
that the installation would have a deficit of 600 family units in the
year 1999.  The analysis estimated that only 140 of 1,944 suitable
and affordable vacancies in the private sector would be available for
Marine families.  If the analysis had assumed that most suitable and
affordable excess vacancies were available to military families, the
analysis would have predicted that Cherry Point would have a surplus
of government housing units instead of a deficit in the year 1999. 
Further, the analysis assumed that 2,352 additional families would be
moving to Cherry Point because of Base Realignment and Closure
Commission decisions in 1993.  In 1995, the Commission changed this
decision, and the additional personnel will not be moving to the
installation.  Cherry Point officials stated that most of the
installation's housing was old and did not meet current suitability
standards.  They estimated that about $187 million would be required
to renovate the existing inventory of government housing units.  At
the time of our visit to Cherry Point in September 1995, 165 officer
and enlisted housing units were being renovated at a cost of $8.3
million. 


      HOUSING REQUIREMENTS
      DETERMINATION HAS BEEN A
      LONG-STANDING PROBLEM
-------------------------------------------------------- Chapter 3:2.3

The questionable quality of the services' housing requirements
determination process has been a long-standing problem that has been
cited in several past audit reports.  For example, a 1992 report by
the DOD Inspector General found that the Navy and the Air Force
overstated family housing requirements and understated the amount of
private- sector housing available to satisfy requirements for several
proposed housing projects.  A 1994 report by the Naval Audit Service
concluded that the Navy overstated housing requirements at eight
installations because the requirements determination process was
based on flawed procedures, poor implementation of those procedures,
and inaccurate data. 

More recently, the House Committee on National Security's report
accompanying the National Defense Authorization Act for Fiscal Year
1996 directed the Secretary of Defense to study the different methods
used by the services to determine housing requirements and develop a
departmentwide standard methodology.  In response, the DOD Inspector
General is auditing the various methods used by the services to
determine whether the methods identify housing requirements in an
accurate and economical manner.  DOD plans to assess the findings and
recommendations of this audit and respond to the Congress by October
15, 1996. 


   OTHER FACTORS CONTRIBUTE TO THE
   CONTINUED USE OF GOVERNMENT
   HOUSING
---------------------------------------------------------- Chapter 3:3

In addition to DOD's underestimating the private sector's ability to
meet military needs, other factors have contributed to the continued
use of government housing, even when private housing is available. 
These factors include concerns over quality of life, a reluctance to
designate more government housing for junior personnel, and housing
allowance amounts that make available private housing unaffordable. 


      QUALITY OF LIFE CONCERNS
-------------------------------------------------------- Chapter 3:3.1

Over the past 2 years, DOD has placed increased emphasis on improving
the quality of life of military members and their families.  Citing a
direct relationship between quality of life and readiness, DOD has
pursued efforts to improve key quality of life elements such as
compensation, family separation time, community and family services,
and housing. 

In the housing area, many DOD housing officials stated that the
quality of life of military families is better served through use of
government housing.  As a result, they stated that many installations
have continued to operate government housing at locations where the
private sector could meet additional military housing needs. 

DOD officials noted that by living in government housing, families
have the nearby support of other military families, enjoy a sense of
greater security and safety, can save transportation costs, and are
closer to on-base amenities such as commissaries, child care, and
recreation facilities.  Further, on-base housing is always affordable
since families do not pay out-of-pocket costs for their housing,
utilities, or maintenance.  Some officials stated that if additional
families were forced to live in private housing, then more families
would pay out-of- pocket housing costs, which could reduce overall
quality of life and adversely affect morale, retention, and
recruitment. 

Because quality of life is somewhat intangible depending largely on
individual preferences and perceptions, it is difficult to identify,
measure, and assess the factors that most affect a service member's
quality of life.  For the most part, we found little quantifiable
evidence that supports the view that quality of life is better served
through military housing.  Without such information, DOD does not
know whether decreased reliance on government housing would result in
adverse consequences. 

DOD officials agreed that there is little quantifiable data available
to show that military families prefer to live in military housing. 
However, they stated that the high demand for government quarters is
strong evidence that families prefer military housing and that
continued operation and improvement of this housing will enhance
quality of life.  DOD officials noted that government housing has a
very high occupancy rate and that most installations have a waiting
list of families that desire to move from private housing to
government quarters. 

Some evidence, however, indicates that the current demand for
government housing may not be an accurate indication of member
preferences for housing because military families have a significant
financial incentive to seek government quarters.  For example, some
Army officials stated that the demand for government quarters in all
likelihood would be far less if families paid the same out-of-pocket
costs for government housing that they pay for private housing. 
Also, in its 1993 report on military family housing, CBO reported
that "not all, or even most, families who value the on-base
life-style would choose to live in DOD housing if they were faced
with paying its full cost .  .  .  It seems likely that without the
implicit price subsidy for DOD housing, many more families would
choose to live in the private sector."

Although little data is available on service member housing
preferences, we identified some information that cast doubt on the
view that members prefer government housing.  For example, a May 1995
report on quality of life in the Air Force concluded that "more Air
Force personnel live off-base and given the means, prefer to live
off-base." The report stated that the factors, ranked in order, that
affected members' decisions to live in government or private housing
included where they were stationed, safety, cost, and housing
quality.  Similarly, a January 1995 report on quality of life in the
Marine Corps reported that members living in private housing were
more satisfied with their residence than those living in on-base
family housing. 

During our visit to the Commander-in-Chief, Atlantic Fleet, in August
1995, housing officials and top enlisted personnel stated that the
quality of life of military families was better served through use of
private housing.  They stated that most military families prefer to
live in civilian communities, particularly when they can afford to
purchase homes. 

Concerning the impact that housing conditions have had on military
quality of life and readiness, we found little evidence that
retention or recruitment has been affected adversely by existing
housing conditions.  For example, in DOD's annual report on personnel
readiness for fiscal year 1995, DOD reported that skillful management
of the force drawdown since fiscal year 1992 has allowed DOD to
improve the quality of the force and its readiness.  Also, a DOD news
release in November 1995 reported that the armed services had met
their fiscal year 1995 recruiting goals "while maintaining the high
quality necessary to maintain a capable, ready force."

Similarly, a Navy survey of enlisted personnel who left the service
in fiscal year 1995 showed that the top three reasons for leaving
were basic pay, promotion and advancement opportunities, and amount
of family separation.  A comparable fall 1995 Army survey of enlisted
personnel reported that the top four reasons for leaving the Army
were the amount of basic pay, quality of Army life, promotion
opportunity, and separation from family.  Less than 1 percent of the
respondents in each survey cited housing quality or housing
availability as a reason for leaving the service. 


      RELUCTANCE TO INCREASE
      GOVERNMENT HOUSING FOR
      JUNIOR PERSONNEL
-------------------------------------------------------- Chapter 3:3.2

Some military installations reserve government housing for senior
personnel at locations where private-sector housing is available and
affordable for senior personnel.  When the private housing near these
installations is too expensive for junior personnel, this practice
can increase reported housing deficits because junior personnel may
be living in private housing that is considered too expensive or
otherwise unsuitable for their paygrades. 

For example, the Navy's November 1993 housing analysis for the
Norfolk naval complex forecasted a deficit of 2,171 housing units for
1998.  The deficit primarily reflected the shortage of private
housing that was affordable to junior enlisted personnel.  However,
the analysis also reported that enough private housing was available
and affordable to meet the housing needs for all officers and most
senior enlisted personnel.  If senior personnel and their families
lived in private housing and if the government housing currently
reserved for their use were redesignated for use by junior personnel,
the reported deficit would be 775 units, a decrease of 1,396 units. 

This problem with housing for junior enlisted personnel is caused by
two factors.  First, because housing allowances increase with rank,
junior enlisted personnel are least able to afford private-sector
housing.  In the Washington, D.C., area, for example, the monthly
housing allowance for the family of a junior enlisted member in
paygrade E-3 is $659.  The allowance for an E-6 family is $893, or 35
percent more than the E-3 family's allowance. 

Second, junior enlisted families are more likely to live in private
housing than higher graded personnel because proportionally less
government housing is assigned to junior members and their families. 
In fiscal year 1995, about 22 percent of junior enlisted members'
families in paygrades E-1 through E-3 lived in government housing
compared to 37 percent of the families in paygrades E-4 through E-6
and 30 percent of the families in paygrades E-7 through E-9. 

DOD officials agreed that the relatively low proportion of government
housing assigned to junior personnel is a problem.  They stated that
one reason the situation exists is because, prior to the early 1970s,
junior enlisted personnel with dependents normally were not
authorized to live in government family housing.  As a result,
housing constructed before that time was designed for more senior
personnel and designated for their exclusive use.  Many members
continue to view assignment to government quarters as a privilege
traditionally available to more senior, career personnel. 

DOD officials also stated that, although more government housing has
been made available for junior enlisted personnel over the past few
years, some installations continue to reserve government housing for
senior personnel in areas where senior personnel can afford to live
in private housing.  They stated that some installation commanders
are reluctant to designate more government housing for junior
personnel because of the perceived adverse impact on senior
personnel.  Specifically, some commanders are concerned that
requiring senior personnel to live in private housing so that junior
personnel can live on base will be viewed by senior members as a
reduction in their benefits and quality of life. 

Although we understand the reasons supporting the reluctance to
designate more quarters for junior personnel, the practice can reduce
the savings available to the government by maximizing use of private
housing.  Also, to lessen the potential impact on senior personnel
and their families, housing redesignations could be accomplished over
a phased period of time as the families move from government housing
when transferred to other duty stations. 


      ALLOWANCES KEEP PRIVATE
      HOUSING FROM BEING
      AFFORDABLE
-------------------------------------------------------- Chapter 3:3.3

Another factor that contributes to the continued reliance on
government housing is the high cost of private housing.  DOD
officials stated that many communities surrounding military
installations have housing that is available to military families but
often the housing is not affordable.  DOD considers private housing
to be unaffordable to a family if the housing costs, including
utilities, exceed an amount equal to the sum of a member's basic
housing allowance, variable housing allowance, and an additional 50
percent of the basic allowance. 

Our analysis of the housing situation at 21 installations identified
several cases where private housing was available but was considered
to be unaffordable.  For example, the Navy's October 1994 housing
analysis for the San Diego naval complex reported that affordability,
rather than availability, of private housing was a key reason causing
a military housing deficit in the area.  The analysis reported that
in 1994, 41 percent of all one- and two-bedroom rental units and 98
percent of all three-bedroom rental units were not affordable to
service members in paygrades E-1 through E-3.  For all enlisted
paygrades, 20 percent of all one- and two-bedroom rental units and 75
percent of all three-bedroom units were not affordable.  Partly
because similar affordability problems were predicted for 1999, the
analysis estimated that a housing deficit would continue. 

Affordability of private housing was also a key problem reported in
the March 1994 housing analysis for the Marine Corps' Twentynine
Palms installation.  The analysis predicted that in 1998, 45 percent
of all one- and two-bedroom rental units and 100 percent of all
three-bedroom rental units would be unaffordable to service members
in paygrades E-1 through E-3.  The analysis also reported that over
1,200 military families who lived in private rental housing in 1993
were unacceptably housed primarily because of high costs.  However,
service members in most paygrades at Twentynine Palms do not receive
the variable portion of the housing allowance because the
installation is not considered to be in a high-cost area. 

Assuming that the market analyses correctly reported the actual costs
of private-sector housing, situations such as these raise questions
about the adequacy of the housing allowance program.  In addition to
helping defray housing costs when living in the private sector,
housing allowances are intended to equalize housing costs paid by
service members in the same paygrade, regardless of where they live
in the United States.  In other words, housing allowances are
designed so that members in the same paygrade should pay the same
amount of their housing costs whether they live in a rural, low-cost
area or in an urban, high-cost area.  For example, for fiscal year
1996, housing allowances were established at levels so that an E-5
family living in private housing will pay about $153 a month out of
pocket for housing costs, regardless of where the family lives in the
United States.  The housing allowance is supposed to cover the
remaining portion of the typical total housing costs for each
geographic area. 

If housing allowances functioned as intended, it appears unlikely
that an installation's housing analysis would find that most
private-sector housing was unaffordable to military families.  Yet,
this is the case in some locations.  According to DOD officials, the
primary explanation for this is that a different measure of housing
costs is used to determine housing allowances than is used to
determine private housing affordability in housing analyses.  To
illustrate, the variable portion of the housing allowance is based on
the amount service members actually spend for housing in a geographic
area.  In contrast, the housing analyses determine private housing
affordability on the basis of average rents charged in an area for
housing of the size and quality that members are entitled to. 

Use of different measures of housing costs can cause allowances to
spiral downward relative to actual housing costs in an area, making
private housing less affordable.  For various reasons, such as
keeping housing costs to a minimum, members in a geographic area may
choose less housing than they are entitled to.  For example, a family
entitled to four bedrooms if living on base may rent a three-bedroom
apartment or a house in a less desirable neighborhood.  These members
report lower housing expenditures than they would if they obtained
the size and quality of housing they are entitled to if they lived in
on-base housing.  Because allowances are based on expenditures, the
result is that allowances for some areas are established at levels
lower than they would be if they were based on an area's average
housing costs.  Lower housing allowance amounts in subsequent years
can result in families obtaining even less quality or quantity of
housing, causing a downward spiral to develop. 

A key issue is that this problem results in some installations
reporting larger housing deficits due to the unaffordability of
private housing.  Under the current system, the deficits can be used
to justify the need to build new or renovate existing government
housing.  Although we did not perform a detailed analysis, it appears
plausible that at some installations increased allowances would make
more private housing affordable and be a more cost-effective
alternative than continued use of government housing.  Our point is
that DOD normally does not consider options involving changes to
housing allowances when considering solutions to housing problems at
specific locations. 

DOD officials stated that a working group has been formed to study
the housing allowance program to determine whether changes are
needed.  Any proposals for change would be submitted for
congressional consideration during the fiscal year 1998 budget
process. 


HOUSING PROGRAM CONTAINS
INEQUITIES FOR MILITARY FAMILIES
============================================================ Chapter 4

Whether through cash allowances or government housing, the nontaxable
housing benefit provided by DOD's housing program is a significant
part of the military compensation package.  However, when viewed from
a compensation perspective, the program contains inequities for
military members and their families.  Specifically, the program
allows significant differences in the value of the housing benefit
that is provided to members of the same paygrade depending on whether
they live in private or government housing.  The differences exist
both in the out-of-pocket amounts paid by military families for
housing and in the housing costs paid by the government to provide
housing benefits. 


   DIFFERENCES IN HOUSING COSTS
   PAID BY FAMILIES
---------------------------------------------------------- Chapter 4:1

About two thirds of all military families in the United States own or
rent housing in the private sector.  These families receive a housing
allowance that covers about 80 percent of typical private housing
costs.  The families pay the remaining 20 percent of their housing
costs out of pocket from other sources of income.  The other one
third of military families live in government housing.  These
families forfeit their housing allowances but pay no out-of-pocket
costs for housing and utilities. 

The difference in out-of-pocket costs creates an equity issue because
service members of the same paygrade that perform the same job for
the military can have different amounts of disposable income
depending on whether they live in government or private housing.  For
example, the out-of-pocket housing cost for a typical E-6 family that
lives in private housing is about $2,050 for fiscal year 1996.  In
other words, an E-6 family in private housing will pay about $171
more each month for housing than is covered by the housing allowance. 
In contrast, another E-6 family that lives in government housing will
not have to pay any out-of-pocket costs for housing or utilities.  As
a result, in comparison to an E-6 family living in private housing,
an E-6 family in government housing will have $2,050 more each year
to use for other purposes. 

As another example, an O-4 family that lives in private housing in
fiscal year 1996 typically will spend $2,760 out of pocket for
housing because the housing allowance covers only 80 percent of
housing costs.  However, another O-4 family that lives in government
housing will not pay any out-of-pocket housing costs and could use
this $2,760, or $230 each month, for other purposes. 

The average out-of-pocket costs paid by service members living in
private housing are determined through the process that establishes
housing allowances.  To set housing allowances, DOD conducts an
annual survey of all service members that live in private housing. 
The survey obtains information on the actual amount each member pays
for housing--the actual monthly rental cost or equivalent mortgage
payment.  DOD estimates total housing costs by adding a standard
amount for utility costs to the reported monthly housing cost.  In
each geographic area, DOD averages total housing costs and sets
allowances so that the median out-of-pocket costs for members in the
same paygrade are the same in both high- and low-cost areas of the
country. 

The out-of-pocket housing costs paid by service members in selected
paygrades in fiscal year 1996 are shown in table 4.1. 



                               Table 4.1
                
                 Median Family Out-of-Pocket Costs for
                            Private Housing


Paygrade                                             Monthly  Annually
--------------------------------------------------  --------  --------
E-3                                                     $105    $1,260
E-4                                                      135     1,620
E-5                                                      153     1,836
E-6                                                      171     2,052
E-7                                                      179     2,148
E-8                                                      192     2,304
E-9                                                      222     2,664
O-1                                                      147     1,764
O-2                                                      151     1,812
O-3                                                      184     2,208
O-4                                                      230     2,760
O-5                                                      247     2,964
O-6                                                      318     3,816
----------------------------------------------------------------------
In a November 1994 draft report on family housing, DOD noted that the
difference in out-of-pocket housing costs between families living in
government housing and in private housing created a basic inequity
that was recognized by all service members.  However, DOD officials
stated that the inequity did not appear to be a significant factor
affecting morale.  The officials stated that most members accepted
the difference as a fact of military life. 


   DIFFERENCES IN FAMILY HOUSING
   COSTS PAID BY THE MILITARY
---------------------------------------------------------- Chapter 4:2

Another way to consider the equity question in the housing program is
to examine the amount that the government pays to provide military
families with housing.  As discussed in chapter 2, the government
spends from $3,200 to $5,500 more annually for a family that lives in
government housing than it spends on allowances for a family that
lives in private housing.  This difference can create an equity issue
because the government's housing expenditure is significantly
different for service members of the same paygrade depending on
whether they live in government or private housing. 

For example, an E-3 family could be assigned to a government housing
unit that costs the military over $100,000 to construct and over
$8,000 annually to operate and maintain.  At the same installation,
another E-3 family could live in private housing.  For this family,
the military typically would pay about $5,680 in housing allowances
annually. 

As another example, the Navy leases 300 family units from a private
company at 1 complex in the Norfolk naval installation area.  For
each leased unit, the Navy spends about $14,600 annually in rent,
utilities, and other related costs.  Some E-4 families are assigned
to these leased units.  Because the complex normally is fully
occupied, other E-4 families live in private housing in the
surrounding community and receive $6,258 annually in housing
allowances.  In this situation, the military's housing expenditure is
about $8,300 more for one service member than another member,
although both are the same paygrade and may even perform the same job
for the Navy. 

Similarly, the Marine Corps leases 600 family units at the Twentynine
Palms installation.  Each unit costs about $14,600 annually,
including utilities and related costs.  Some E-5 families are
assigned to these government quarters.  Other E-5 families live in
private housing and receive $5,380 annually in housing allowances. 
Because of differences in where they live, the military's expenditure
for housing is about $9,200 more for one service member than another
in the same paygrade. 


   PREVIOUS REPORTS HAVE ADDRESSED
   THE HOUSING EQUITY QUESTION
---------------------------------------------------------- Chapter 4:3

It is not easy to find a cost-effective solution to the equity
problem created by DOD's housing program.  Past DOD studies related
to family housing issues, such as the Defense Science Board's Quality
of Life report and the Seventh Quadrennial Review of Military
Compensation, generally accepted continuation of the current program. 
However, the reports recommended that the difference in housing costs
be reduced somewhat by increasing allowances so that families pay
only 15 percent out of pocket. 

The Quality of Life report also made a long-term recommendation that
potentially could eliminate the housing cost inequity.  The report
recommended establishing a military housing authority to build,
maintain, and operate all military housing.  Details on how the
concept would be implemented or estimates of its cost were not
provided in the report.  However, under this concept, housing could
be provided for all military families who would forfeit their
allowances but pay no out-of- pocket costs.  This approach would
result in greater equity because no families would pay out-of-pocket
costs.  DOD officials stated that eliminating the out-of-pocket costs
for all families probably would be unaffordable. 

One of several proposals for reducing military housing costs
presented in the 1993 CBO report also could eliminate the housing
cost inequity.  Under the proposal, all military families would
receive a housing allowance and families that lived in government
housing would pay rent and the cost of their utilities.  In addition
to eliminating the financial incentive to seek government housing,
CBO noted that this alternative could result in greater equity
because all families would pay a portion of their housing costs out
of pocket.  CBO stated that the intent of the proposal was to not
increase the out-of-pocket costs of military personnel.  Thus, CBO
suggested that any difference between DOD's total rent and utility
receipts and the cost of providing housing allowances to families
living in government housing would be used to finance an increase in
allowance levels for all military families.  DOD officials stated
that the proposal would reduce the quality of life of military
families. 


CONCLUSIONS AND RECOMMENDATIONS
============================================================ Chapter 5


   CONCLUSIONS
---------------------------------------------------------- Chapter 5:1

DOD's policy of relying first on private-sector housing to meet
military family housing needs is cost-effective.  Although there is
some variation in the estimates, CBO, DOD, and our estimates show
that the cost to the government is significantly less when military
families are paid a housing allowance and live in private housing
than when they live in government housing. 

In addition to being cost-effective, there are other advantages to
relying on private housing.  In the current environment of
constrained defense budgets, the short-term flexibility offered by
housing allowances appears preferable to the long-term commitments
required by military construction.  For example, family housing
requirements fluctuate as changes occur in the missions and in the
number of personnel assigned to each installation.  Generally, such
changes in housing requirements can be accommodated more easily
through use of housing allowances compared to the construction,
operation, and maintenance of fixed inventories of government housing
units.  Further, housing allowances also can offer service members a
greater selection of housing options to fit their needs instead of
limiting them to what is available in government housing. 

Although DOD's policy of relying first on private-sector housing to
meet family housing needs is cost-effective, the military services
have not taken full advantage of the significant savings available
through greater use of private housing.  This is because DOD and the
services have (1) relied on housing requirements analyses that often
underestimate the private sector's ability to meet family housing
needs, (2) believed that quality of life of military families is
better served through use of government housing, (3) been reluctant
to designate a greater portion of existing government housing for use
by junior personnel who are less able to afford private housing than
senior personnel, and (4) used a housing allowance system that
results in available private housing being considered unaffordable in
some areas. 

Many military installations in the United States have a justifiable
need for government quarters.  But steps are needed to ensure that
government quarters are provided only at installations where the
local communities cannot meet the housing needs of military families. 
In addition to formulating detailed goals and plans to achieve
maximum use of private housing, such steps include standardizing and
improving the housing requirements determination process, measuring
members' preferences for family housing, designating more government
housing for junior personnel, and evaluating potential changes to the
housing allowance system to foster greater reliance on private
housing.  In locations where the local communities can meet
additional military family housing requirements, existing government
housing units can be closed, rather than renovated or replaced, when
the units reach the end of their economic life. 

The military family housing program also does not result in equitable
treatment for all families.  Two thirds of all military families in
the United States live in private-sector housing and pay about 20
percent of their housing costs out of pocket.  The remaining one
third live in government housing and do not pay any out-of-pocket
costs for housing.  As a result of the differences in out-of-pocket
costs, the families that live in private housing typically have less
disposable income than families of service members of the same
paygrade that live in government housing.  Further, because of the
difference in the government's cost to provide government housing and
to pay housing allowances, the military spends significantly more to
house families in government quarters than it spends to house
families of service members of the same paygrade in private housing. 

Changes are needed in the housing program to address the inequities
in the housing benefits provided to service members and their
families.  Because two thirds of military families already pay
out-of-pocket costs and to eliminate the financial incentive for
members to seek government housing, we believe that all families
should pay the same portion of their housing costs whether they live
in government or private housing.  Under this approach, families
living in government housing could (1) receive their housing
allowances and begin to pay fair market rent for the housing or (2)
continue to forfeit their housing allowances and begin to pay an
amount equal to the average out-of-pocket costs paid by families
living in private housing. 

In either case, this approach would reduce the housing benefit for
service members living in government housing because they would begin
to pay a portion of their housing costs.  However, to avoid reducing
the total military family housing benefit, the total out-of-pocket
amount paid by families living in government housing could be used to
fund an offsetting increase in the housing allowance for all service
members.  In other words, housing allowances could be increased by an
amount equal to the total out-of-pocket amount paid by families in
government housing.  In addition to helping the two thirds of
military families that currently receive allowances, this would
benefit those in government housing because an increase in the
housing allowance would reduce average out-of-pocket costs for all
members. 


   RECOMMENDATIONS
---------------------------------------------------------- Chapter 5:2

We recommend that the Secretary of Defense take the following
actions. 

  -- Establish a long-term goal to reduce the use of government
     family housing in the United States to the minimum possible
     level.  The goal should limit government housing to families
     assigned to locations where no adequate private housing
     alternative exists and to the small number of families that
     reside on base for military necessity. 

  -- Revise the housing requirements process by issuing guidance to
     ensure that the process (1) matches military housing
     requirements with available private housing before matching the
     requirements with government housing and (2) considers suitable,
     affordable rental vacancies in excess of normal market levels to
     be available to the military.  The revised guidance also should
     take into account the results of the DOD Inspector General's
     review of the housing requirements process. 

  -- Develop information to better quantify the relationship between
     quality of life and family housing.  The information should
     reflect service members' desires and preferences for private
     versus government housing under various circumstances, such as
     if housing allowances were increased, if rent or utilities were
     charged for government housing, and if no changes were made to
     the current program. 

  -- Direct installation commanders to redesignate, to the maximum
     practical level, government housing reserved for senior
     personnel for use by junior personnel in areas where private
     housing is available and affordable for senior personnel but not
     for junior personnel.  To reduce the potential impact on the
     families of senior personnel, this action could be accomplished
     over a phased period of time. 

  -- Ensure that the DOD working group on housing allowances
     considers housing allowance changes that could result in greater
     flexibility in addressing housing problems and cost savings
     through greater reliance on private housing.  For example, the
     group should consider whether (1) housing allowances should be
     based on average housing costs in an area, rather than actual
     member housing expenditures and (2) housing allowances could be
     used in new, innovative ways to solve specific housing problems
     more economically than constructing or renovating government
     housing. 

  -- Develop plans to reduce the difference in the average amounts
     paid for housing by families of service members in the same
     paygrade by requiring families that live in government housing
     pay a portion of their housing costs.  These plans should
     include milestones for implementation. 


   AGENCY COMMENTS AND OUR
   EVALUATION
---------------------------------------------------------- Chapter 5:3

DOD partially concurred with our findings and recommendations (see
app.  II).  At locations where adequate private housing is available,
DOD stated that it will not support construction of new government
housing and will carefully review proposals to replace deteriorated
government housing.  DOD also stated that it is pursuing initiatives
to promote greater private investment in housing for military
families and is studying potential changes to the housing allowance
program that could result in correcting housing inequities and other
problems.  Further, DOD stated that it plans to revisit procedures
for determining housing requirements and has chartered a study that
will address the relationship between quality of life and family
housing. 

With regard to our recommendation that the Secretary of Defense
direct installation commanders to redesignate, to the maximum
practical level, government housing reserved for senior personnel for
use by junior personnel, DOD stated that current policy allows
installation commanders to give priority to lower grades and that DOD
will not superimpose an overall policy that would obstruct local
retention objectives and operational effectiveness.  Although we
understand DOD's concern, we believe that it would be beneficial for
DOD to remind installation commanders of the junior member housing
problem and to encourage the commanders to consider the current
policy when evaluating use of existing on-base housing. 

DOD did not agree with our draft recommendation to equalize the
average amounts paid by service members living in private and
government housing.  DOD stated that requiring the one third of
military members that live in government housing to pay a portion of
their housing costs would reduce their benefits, and as a result,
could have severe consequences for military retention and readiness. 
DOD also stated that it would cost too much to equalize the average
amounts paid for housing by eliminating the out-of-pocket costs for
the two thirds of military members that live in private housing. 

We agree that the recommendation would have an adverse impact on the
military families that live in government housing since they would
begin paying a small portion of their housing and utility costs. 
However, allowing the housing compensation inequity to continue also
has adverse impacts, such as increasing demand for government housing
even in areas where private housing is available.  Further, because
out-of-pocket costs paid by families living in government housing
could be used to fund offsetting increases in housing allowances,
housing benefits for the two thirds of military families that live in
private housing actually could increase.  To clarify the intent of
the recommendation and to ease its impact by allowing time for phased
implementation, we changed the recommendation to say that DOD should
reduce, rather than equalize, the difference in the average amounts
paid for housing by requiring families that live in government
housing pay a portion of their housing costs. 


INSTALLATIONS INCLUDED IN OUR
ANALYSIS OF HOUSING REQUIREMENTS
=========================================================== Appendix I

                                                                      Identified
                                             Total                            as
                                        government     Visited by   problem area
Service        Installation          housing units             us       by DOD\a
-------------  --------------------  -------------  -------------  -------------
Army           Fort Eustis, Va.              1,330            Yes             No
               Fort Knox, Ky.                4,364            Yes             No
               Fort Bliss, Tex.              3,483             No             No
               Fort Hood, Tex.               5,559             No            Yes
               Fort Campbell, Ky.            4,188             No             No
               Fort Polk, La.                4,608             No             No
Air Force      Langley AFB, Va. \b           1,606            Yes             No
               Little Rock AFB,              1,535            Yes             No
                Ark.
               Seymour Johnson AFB,          1,698             No             No
                N.C.
               Cannon AFB, N.Mex.            1,722             No             No
               Andrews AFB, Md.              2,495             No             No
               Bolling AFB, Md.              1,809             No            Yes
Navy           Norfolk Naval                 5,259            Yes             No
                Complex, Va.
               San Diego Naval               8,229            Yes            Yes
                Complex, Calif.
               Pensacola Naval                 885             No             No
                Complex, Fla.
               Mayport Naval                 1,281             No            Yes
                Station, Fla.
               Bangor/Bremerton              2,314             No             No
                Naval Complex,
                Wash.
               New London Naval              2,545             No             No
                Submarine Base,
                Conn.
Marine Corps   Cherry Point Marine           2,764            Yes             No
                Corps Air Station,
                N.C.
               Twentynine Palms              2,411            Yes            Yes
                Marine Complex,
                Calif.
               Beaufort Marine               1,507             No            Yes
                Complex, S.C.
--------------------------------------------------------------------------------
\a In a May 9, 1995, response to questions from the Senate Committee
on Armed Services, Subcommittees on Personnel and Readiness, the
Department of Defense (DOD) identified installations in each service
with the greatest shortfall of family housing on base and in the
local community. 

\b Air Force Base




(See figure in printed edition.)Appendix II
COMMENTS FROM THE DEPARTMENT OF
DEFENSE
=========================================================== Appendix I



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================= Appendix III


   NATIONAL SECURITY AND
   INTERNATIONAL AFFAIRS DIVISION,
   WASHINGTON, D.C. 
------------------------------------------------------- Appendix III:1

James Murphy, Assistant Director


   NORFOLK FIELD OFFICE
------------------------------------------------------- Appendix III:2

Gary Phillips, Evaluator-in-Charge
James Ellis, Site Senior
Tracy Banks, Evaluator

*** End of document. ***