An Economic Analysis of Military Family Housing

To solve the latest housing short fall, the government approved the Military Housing Privatization Initiative (MHPI) 1996. Under this program the government contracts private developers to build, own, and operate housing units. The developer then collects rent via housing allowance. At the time MHPI was approved, military members were expected to pay 15 percent of their housing costs out of pocket. Subsequent legislation has increased housing allowance to provide 100 percent of all housing costs eliminating out of pocket housing expense. Given the increased housing allowance, the objective of this research was to determine if there is financial value to the government to retain ownership of military family housing. This was done by calculating the Net Present Value (NPV) of recapitalizing BAH payments into family housing operations over 50 years, the contract period for privatized housing projects. The results show that MHPI provided the greatest financial benefit to the government at the time it was signed into law. This advantage changed when housing allowance increased eliminating out of pocket housing expense to the military member.