To Fix Air Force Housing

July 1, 1999

If the Pentagon had not adopted major changes in its housing policies, some future Air Force Chief of Staff could have taken office just as the service was starting to renovate the family quarters he had occupied as a captain.

Col. Emmitt G. Smith, chief of USAF’s Housing Division, uses that admittedly far-fetched illustration to underscore the importance of DoD’s new approaches to the housing problem.

Smith noted that the Air Force owns about 110,000 housing units. As of this year, he added, the average unit is roughly 35 years old. Further, he said, approximately 61,000 units require significant renovation or replacement to bring them in line with accepted living standards.

“To fix those units using traditional military construction funds would cost the Air Force around $7 billion and, at our current funding level, it would take about 26 years or so,” Smith explained. “And that doesn’t even address renovating the other 40,000 units that will continue to age over that period.”

To speed up improvements in the housing picture, not only on base but also in the civilian community, the service has launched three major initiatives.

First, the Air Force will not only contract out the construction and renovation of family quarters but give civilian developers ownership of units and responsibility for maintaining them. This privatization, officials say, will magnify the buying power of the services’ scarce construction and maintenance funds to bring quarters up to par in about one-third the time and at a fraction of the cost of traditional approaches. This has been tried before, not always with positive results, but USAF is determined to make it work.

The second effort aims at helping service families who do not use family quarters and have relied on a hodgepodge of allowances to meet housing costs in communities. A single Basic Allowance for Housing (BAH) now is geared to actual housing in the continental United States. One Overseas Housing Allowance (OHA) will cover members abroad.

The third initiative is a three-phased dormitory master plan, designed to put most enlisted members into private rooms, eliminate single-housing shortages, and replace older dorms all within the next 10 years.

Under New Ownership

The latest privatization effort has been slow to get off the ground. It began in Fiscal 1996, but the services have so far initiated only four major projects, including one at Lackland AFB, Texas. Meanwhile, the services have been assessing their housing needs and developing a variety of ways to solve them. The effort now is gaining momentum, officials say.

Smith said, “We’re laying out a strategy for the Air Force to fix those 61,000 inadequate homes by the year 2010. We’ve been developing a family housing master plan to incorporate a balanced approach of traditional military construction and privatization.”

He said the effort aims to get the utmost leverage from housing and Operations and Maintenance (O&M) funds to reduce the 26-year period required for traditional military construction funding levels.

Last fall, Air Force teams assessed housing at virtually every base, considered alternative ways of fixing the quarters, and developed a cost estimate. Last winter, they briefed the Air Force leadership and went back to major commands with revised plans. Later this summer, housing officials will go back to senior leaders with a more definitive plan.

Meanwhile, some upgrading already is under way. Smith said that, from Fiscal 1988 through Fiscal 1998, USAF either renovated or replaced about 28,500 homes. Last year, it awarded its first privatization project for 420 units at Lackland. USAF has two projects under way overseas—one at Aviano AB, Italy, for 530 units and another at RAF Lakenheath, UK, for 518 units.

For Fiscal 2000, plans call for the Air Force to replace 1,180 homes at 15 bases and make improvements to another 1,334 at 13 bases. Additionally, USAF is seeking another $205 million in military family O&M funds for 2000 to place more emphasis on maintenance of the facilities.

The Air Force’s strategy is to stretch its building and maintenance dollars by getting private investors to assume more of the up-front construction costs and to be responsible for the upkeep of the quarters.

Privatization, in the sense of the government working with civilian developers, is not entirely new to the services. Under the 1949 Wherry Program, more than 83,000 homes were built on or near installations by private contractors using private financing with the government guaranteeing the rent. Another 15,000 units were built by private contractors on government land under the 1955 Capehart Program, with the sponsoring services taking over the FHA mortgages and the responsibility for O&M.

Then, in 1962, Secretary of Defense Robert S. McNamara centralized housing management and funding under DoD and pressed for increased use of appropriated funds over private financing for construction. Twenty years later, however, the services regained responsibility for housing programs and Congress approved several new third-party financing plans.

One program (called Section 801) had the services signing 20-year lease/purchase deals with developers. Another (Section 802) required them to guarantee 97 percent occupancy or subsidize payments. A third (Title 10) let the services lease government lands to builders with no rental guarantees and service members lease the quarters from the developers.

A Different Tack

None of these recent privatization efforts bore much fruit, largely because they demanded an overly large commitment from the services, and developers saw little prospect of profiting from their investments.

Col. David A. Sweat, chief of USAF’s Competitive Sourcing and Privatization Division, said the new privatization approach is different in a number of respects. For example, it allows existing government housing to pass into private hands.

Congressional legislation enacted in 1996 authorized the transfer of military family housing to private ownership, Sweat said, and that includes the operation, maintenance, and management of the housing. “At Lackland, we are leasing the land, and the units will be owned by the developer,” said Sweat.

Often, added the colonel, developers may decide that the existing housing they have inherited is hopeless and start over from scratch.

Currently, the Air Force has 10 housing privatization initiatives in various stages. The approaches are all different, Sweat said. At Lackland, the Air Force conveyed part of the housing, but the developer will replace those units and build some other new ones, too. At Dyess AFB, Texas, USAF is looking for a deficit reduction with all brand-new units, about 402 of them for junior enlisted people. At Robins AFB, Ga., the proposal is to tear down and replace 370 units and renovate 300, for a total of 670 units.

“It all depends on the condition and where they are,” said Sweat. “Generally, we would put an option in there and say, ‘If you want to tear down and replace the units in lieu of renovation, we will consider that as an enhancement to the deal and look at it from that perspective.’ “

The real advantage of privatized housing, according to Sweat, can be seen in the Lackland case.

“When we started out, we were going to build 149 units and we had $17 million of authority to do that,” he said. “When we ended up, we now have a project for 420 units and the government contribution is $6.3 million. So, we are getting roughly $42 million worth of construction now, vs. having to schedule it in increments over the next maybe 10 years to get all the military construction authority. That is an 8-to-1 leverage of our available dollars to get our people into quality housing.”

Compared to earlier days, USAF will underwrite less construction and maintenance, officials said. The onus will be on developers to make the projects profitable. Air Force housing offices still will refer members to the housing, but it will be up to the developers to make the quarters attractive enough to attract paying customers.

Disaster Insurance

Officials concede, however, some projects will need more than the assured renters to attract civilian builders. After four rounds of base closings, some developers may be concerned that they could be stuck with units they can’t fill because the host base has disappeared.

Officials say there is no way to predict whether another round of closings will happen or what bases it could affect, but the Air Force does have ways to sweeten the contract deals for nervous developers.

“There are many authorities available to us, depending on the project,” said Sweat. “We could offer loan guarantees in areas where there is little demand for additional rental housing in the local economy. At a location such as Patrick AFB, Fla., you may not need any guarantee. It’s near a beach, the climate’s nice, and the economy is booming, so there is a high demand for housing. In Mountain Home, Idaho, however, you might have to offer a loan guarantee because there is not a secondary market to absorb the housing if we got a base closure or reduction.”

Under past housing programs, the Air Force also promised developers that, if less than a given percentage of quarters were occupied, it would make up the difference in lost rents. Under the new program, the approach is different.

“We do not guarantee the actual rent,” said Sweat, “but, if a house is vacant for 90 days and the occupancy rate is below 95 percent, we will allow the developer to go to another category of renters. He would go first to single military members and then to Guard and Reserve personnel. After that, he could go to DoD civilians, then to contractor personnel that work on the base, and finally to the civilian populace.

“If he did rent to a person who is not a military member, however, we would limit that to a one-year lease and charge a fair market rent, which is generally higher.”

It is unlikely that the Air Force will face a lack of applicants for base housing. Even when base housing is in poor condition, waiting lists exist.

“There are many reasons families want to live on base, rather than off base,” said Smith, “but one of the primary ones is economics. If you live on base now, there is no out-of-pocket expense. The member forfeits his Basic Allowance for Housing and then he gets a house, [and] his utilities are paid. Often the family can get by with just one vehicle. If you are a lower-ranking individual, either officer or enlisted, that can be a significant factor.

“So, the attractiveness of privatized housing is that our troops will give up their Basic Allowance for Housing just as they would if they were living in government-owned housing. So nothing would be coming out of their pockets. With off-base right now, you are looking at about a 20 percent out-of-pocket expense.”

The Single Life

While the Air Force is counting on privatization to be the long-range answer to its family housing problems, it already is touting its new approach to enlisted quarters as a resounding success.

The solution, officials say, is the “1+1” dorm, a unit in which each airman has a private room and shares a bath and kitchenette with one other.

“The No. 1 concern voiced by our unaccompanied airmen in dormitories in some surveys has been privacy,” said Smith. “So we have endorsed the DoD initiative to move to the 1+1 standard.”

From Fiscal 1996 through Fiscal 1999, the Air Force invested almost $1 billion in construction and renovation.

This has allowed the Air Force to achieve the first objective of its three-part investment strategy—to eliminate all central-latrine dormitories for permanent party personnel. Once the Fiscal 1999 projects are completed, the Air Force no longer will have central-latrine dorms for permanent party personnel. It will retain some for basic trainees.

According to Smith, the Air Force will also move to eliminate its room deficit and renovate or replace its very worst dorms. It expects to achieve success in both areas in 10 years.

Like the master plan for family housing, however, the one for dormitories is subject to revision.

“It’s a living document,” said Smith. “The Air Force is changing, the latest change being the move toward expeditionary forces. We’re also seeing competitive sourcing, where sometimes a function will be contracted out. Then we lose the GIs assigned to that organization and our requirement for room space goes down.”

Against such possibilities, the 1999 version of the dorm plan will try to anticipate force change and project requirements several years in the future.

The Allowances

While the services have been revamping their approaches to housing both married and single members, they also have been reworking their systems for paying quarters allowances in an effort to match them more closely to local housing prices.

In January 1998, Congress approved a new BAH. It combined the old quarters allowance with the cumbersome Variable Housing Allowance that the services have used in areas with higher living costs.

The aim now is to gear allowances to the actual prices of housing rather than to what members reported paying under the VHA system. The Air Force is using Runzheimer International, a private research group, to develop the local housing data.

“They use a combination of methods,” said Maj. Justo Rivera, chief of USAF’s pay and allowances policy. “HUD [the Department of Housing and Urban Development] supplies figures and Runzheimer goes out and makes actual surveys. They contact local realtors, check newspaper ads, and do on-site surveys.

“They look not only at rental costs but at utilities and things such as homeowner’s insurance. The allowance is geographically based and varies by grade and dependency status. We believe it is more responsive to the increase of housing costs than the previous system.”

Many members eventually will see sizable increases in their housing payments. Since the BAH system is being phased in over a six-year period, however, the raises will come in modest increments.

At the same time, members in areas where USAF finds they were being overpaid under VHA will not suffer immediate cuts. A rate-protection provision of BAH allows them to collect the higher of the two allowances for their areas unless they are demoted, reassigned, or have a change in dependency status.

One virtue of the new program, officials say, is that it will eliminate what has become known as the “death spiral.” Under the old VHA system, some members chose to move into inadequate housing to save money. Then, when they reported their expenses on VHA surveys, their allowances were reduced. Because the BAH system bases rates on costs in an area rather than expenditures, this should not happen in future.

Like the old system, however, the new one still will not cover all the costs of housing. At best, officials say, it will make the out-of-pocket costs (known as the “absorption rate”) more nearly equal across the force.

“The aim is that everyone in the same grade and dependency status will have about the same expenses after the transition period is over,” said Rivera. “A technical sergeant assigned to the D.C. area will pay the same out-of-pocket amount as a tech sergeant in San Antonio or any other location in the US.”

Officials concede that members probably will face some out-of-pocket costs for housing for the foreseeable future, but they hope eventually to bring them down as well.

The Air Force’s most recent housing survey showed that, on average, members were paying about 20 percent more than their allowances for quarters. Congress has pegged the reasonable difference at 15 percent.

“Through the transition period,” said Rivera, “you will have some locations where the housing costs will be higher and some where the members will be closer to the Congressionally intended 15 percent, but I believe that, overall, it is a more effective system and it is more reactive again to the high cost of housing. When the transition is over, however, we hope to find ways of reducing the absorption rate to 15 percent for everybody. That’s one initiative we’re looking at right now.”

The Air Force’s quality-of-life surveys have found that much of the housing that USAF members could afford was too far from bases, poorly maintained, or in undesirable neighborhoods. The BAH surveys try to avoid such locations.

Rivera said that the Runzheimer consultants look at where members live now and at the housing of civilians with comparable salaries. They also look at quality-of-life elements such as crime rates and school opportunities and try to eliminate those sectors that people have avoided.

While much of the Air Force’s attention has been focused on improving the housing picture in the continental US, parallel efforts are under way overseas.

USAF surveyed its 26,000 family units in non–CONUS regions and found many need renovation or replacement. Under present authority, however, privatization is not an option outside of the US, and the Air Force must use traditional construction funds and O&M funds to improve the situation.

Many overseas dorms also need attention but, here, the concern is not only for privacy but for better force protection. Air Force policy generally is to require only single enlisted troops in grades E-1 through E-4 on base, but incidents such as the bombing of Khobar Towers in Saudi Arabia have prompted USAF to bring higher grades on base as well. This increases the need for quarters.

The services also have adopted a single OHA to bring payments more in line with actual costs for rent and utilities. As in the US, changes in overseas allowances will mean lower stipends for some families. The overall aim is to make payments equitable and realistic.

Bruce D. Callander, a regular contributor to Air Force Magazine, served tours of active duty during World War II and the Korean War. In 1952, he joined Air Force Times, serving as editor from 1972 to 1986. His most recent story for Air Force Magazine, “First Class,” appeared in the June 1999 issue.