The nation's inventory of apartments is heading toward a shortage as early as next year, with an estimated 300,000 apartments needing to be built this year to meet expected demand but fewer than half that number likely to be constructed. But demand already exceeds supply for the very group of Americans who most deserve the safety and comfort of a home: the men and women who serve our country in the armed services.

Housing shortages currently exist for personnel at 19 of the 26 military bases identified as “growth” installations under planned changes in U.S. armed forces structure. At one installation, Cannon Air Force Base in New Mexico, the shortage tops an estimated 20 percent. And at some locations, the scarcity is expected to continue to grow.

This shortage—being driven in part by Base Realignment and Closure (BRAC), as well as efforts to grow the armed forces, army modularity, and global defense posture and realignment— presents an opportunity for participants in the Military Housing Privatization Initiative (MHPI), who, on the other hand, are seeing their multifamily housing construction projects draw to a close over the next few years.

Basic Shortages in Basic Allowance

The MHPI was established by Congress in 1996 to build, renovate, and operate affordable, quality military housing.

MHPI partners are recognized for creating vibrant communities providing safe, decent homes for the military and their families. Military personnel draw a housing allowance— called the Basic Allowance for Housing (BAH)—to pay for rent, utilities, and renters' insurance.

A Government Accountability Office (GAO) audit report issued in May, titled “Military Housing: Enhancements Needed to Housing Allowance Process and Information Sharing Among Services,” states that housing officials interviewed at growth installations are developing plans to negotiate with private partners to expand the supply of adequate housing.

That's the good news.

The not-so-good news is something MHPI partners have long faced—their projected income streams are based on annual BAH calculations. MHPI participants, however, see the BAH as lagging actual market conditions. For example, data collection on rental units stops each year in August, but the new rates become effective on Jan. 1 for that entire year.

Privatized housing operators believe the BAH needs more transparency for all three cost estimates it covers—rent, utilities, and renters' insurance—to yield more accurate information for each amount based on actual expenses.

Generally, rent averages approximately 75 percent of the total housing costs, followed by utilities at 20 percent and renters' insurance at 5 percent. But this scenario is not always the case, with utilities of particular concern.

The GAO report states that utility costs vary widely among different markets and housing types. Although the majority of markets average utility costs of around 20 percent of the total housing allowance, the GAO's analysis shows that utilities in the remaining markets can run anywhere from 8 percent to 40 percent of the total BAH.

A Step in the Right Direction

As a result of the GAO audit, the Department of Defense (DoD) has agreed to make a number of changes to help installations address their housing challenges. Among them: By next year, the DoD will begin publishing cost elements as a percentage range of total costs across all six types of housing (from a one-bedroom apartment to a four-bedroom singlefamily home).

Additional changes proposed by the DoD include developing a communications process to share best practices and tools to address housing needs among installations; improving procedures to identify and address BAH cost estimates; and expanding the definition of “available” rental properties in order to improve the accuracy of data collection for setting local BAH rates.

The DoD's agreement to begin publishing cost elements as a percentage range of total costs is certainly a step in the right direction, but it still doesn't give MHPI partners any input into how the BAH is calculated. The DoD has a huge responsibility to its uniformed members to get the BAH calculation right.

Their private partners appreciate that fact. And many want to bring to the calculation process their vast experience and expertise in rental market surveys.

Understanding how the calculations are currently obtained—and making comparisons with private survey practices—should only improve this process.

DOUG CULKIN is president and CEO of the National Apartment Association (NAA), a national trade association based in Arlington, Va., with more than 51,000 members representing 6.1 million apartments.