BAH is a fundamental component of the military pay package designed to offset housing costs for Service members renting off-base on the local market economy. By law, BAH is determined based on “the costs of adequate housing for civilians with comparable income levels [to military Service members] in the same area.”
BAH rates are computed each year using median market rents and average local utility expenditures (electricity, water/sewer, and heating fuel) for civilians in each local market area. BAH rates fluctuate with annual changes in these costs.
BAH is based on rental housing cost data, and does not consider the home purchase market. A homeowner's monthly mortgage payment is not used in the computation because the monthly cash outlay of a homeowner is not a good indicator of the economic costs of home ownership. The variables needed to compute this include difficult-to-measure factors like the expected appreciation in the value of the residence, the amount of down payment, the opportunity costs of interest from down payments, settlement costs, and the tax savings due to the interest and tax payments deduction. Therefore, to assess exclusively housing costs, BAH is calculated to reflect current rental market conditions.
Yes. Members are free to use their BAH as they choose. However, BAH should not be expected to cover home ownership expenses or track fluctuations in the home purchase market. BAH is targeted to local rental markets. Rental market and purchase market trends, while correlated, do often differ in size, duration, and timing (i.e., a shift in the home purchase market does not necessarily imply the same shift in the rental market).
The Department uses American Community Survey (ACS) data from the U.S. Census Bureau to assess the types of homes typically rented by civilians at different income levels. These income levels are then used to link Service member income (Regular Military Compensation) at each pay grade and dependency status to income level-appropriate housing types. RMC equals the sum of military basic pay, BAH, BAS, and the tax advantage of the untaxed allowances. More information about this process can be found on the BAH Primer [PDF, 12 pages]
No. While BAH distinguishes between with-dependent and without-dependent status, the with-dependent compensation is based on comparable civilians using average family size. BAH rates do not increase with increases in the number of dependents.
No. BAH is based on civilian standards, considering the housing choices made by civilians of comparable income off-base on the local market economy. Government quarters are assigned based on grade and family size.
No. BAH is designed to only address the cost of housing in each area. The CONUS COLA program addresses non-housing costs of living. The fundamental goal of CONUS COLA is to compensate for high cost of living and is payable to uniformed service members based on duty stations in the Continental U.S (i.e., the 48 contiguous states and DC). CONUS COLA is based on grade and dependency status (with or without).
No. BAH is not a hardship allowance. It cannot be used to compensate for a lack of infrastructure. CONUS COLA inherently considers the cost effects of a lack of commissary, exchange, and hospital facilities, because a member without this infrastructure tends to have a higher cost of living. However, a lack of such infrastructure does not, by itself, qualify an area for CONUS COLA.
The only solutions for a lack of available rental housing in an area are an increased supply of housing (such as new construction of commercial or on-base housing) or a decreased demand for housing (such as a local population decrease or force reduction). So, while BAH cannot address housing availability issues, it does track any increased rental prices caused by housing shortages. Members’ BAH will keep pace with increased rents caused by housing shortages over time.
Duty station is the basis for BAH so that members are compensated for the typical housing cost near the member's duty location. Once the duty station is known, the BAH compensation is fixed, regardless of where the member lives.
Using a member's residence location as the basis for BAH would create warped incentives for service members. For instance, such a policy would incentivize members to choose residence location based on BAH rate. In some cases, this could lead to members choosing to live further from their duty station simply to receive higher BAH. In other cases, (e.g., if members chose to commute from/to a lower cost area) BAH rates would be lower, removing the ability of Service members to economize on their BAH. The Services decided to base the allowance on the duty location with the full knowledge that members would still be free to live where they choose, but that this decision would not affect the BAH amount.
Accurately determining if one location has more expensive rental markets than another is a resource-intensive scientific and statistical undertaking. Sometimes, individuals must rely on limited personal experience or anecdotes in media articles to make judgments about housing costs. BAH rates are determined using large-scale, verified, data-driven methods and respected data sources and the Department is confident these rates reflect local markets facing Service members across the country.