Belatedly Affected By New BAH Rates


We learned at the end of last year that BAH levels would drop in some areas in 2011. We also learned that it was dropping a whopping 8% in our area. But we breathed a sigh of relief when we read that the drop would not affect those of us already living in the area. It only affected newcomers. Well, stinks to be them, but I still get my old higher BAH. Whew. And it sounded like it would work in theory:

Because of rate protection, only members arriving after Dec. 31 to areas where rents have fallen will feel the effect of lowered allowances. Those same new arrivals, however, also should face lower rents than did colleagues who arrived in 2010 or earlier, said Cheryl Anne Woehr, BAH program analyst for the Department of Defense.
Except the BAH program analysts forgot to take into account one catch: most renters are military personnel, but most property owners in this area are military personnel as well.

So yeah, these "lower rents" means that we homeowners have to charge less to rent out our homes than the monthly mortgage payment we negotiated in 2006. We bought a house five years ago in our BAH range. But now people of our same rank expect to get our same house for their own BAH rate, which is $150 less than ours was.

We're putting our house on the market to rent at the end of the summer, and we were surprised and dismayed to learn from our realtor that the drop in BAH in this area caused an immediate depression in rental rates. Nearly everyone in this area is military, so most rents hover around the BAH levels. Our housing market stayed relatively stable even when the national housing bubble burst, but the DoD lowering BAH rates immediately changed the dynamic in our city. A $150 drop in BAH means that all homeowners are taking a hit if they rent out their homes.

If you're still paying your own mortgage, you still get the old BAH. You're fine, as we have been for the entire first half of 2011. But if you're expecting a newcomer to start paying your mortgage for you when you PCS, and they now get $150 less than you got, you're going to have to cover that difference.

Yep, the rate we're going to get to rent our house out is $150 less than we thought we'd get, than people historically got in this neighborhood, specifically because the DoD fiddled with the BAH rate.

Unintended consequence of dropping the BAH rate: In our city, people aren't going to have to move into smaller or older houses because they're getting less BAH; instead, all existing homeowners have had to lower their rents so that people can still get as much square footage as they're accustomed to for their rank. Thus property owners -- military servicemembers -- have to cover about $1800 a year out of pocket to make up the difference.

So much for "individual rate protection" preventing us from financial hardship for the decisions we already made based on our BAH levels.

This is the first drop in BAH rates since 1998. I understand that the housing market has changed in recent years, and that everyone is tightening belts these days. The government is looking for ways to save money.

But ouch. The DoD dealt every PCSing family in our area a serious blow by dropping the BAH rates this year. We're all stuck with our homes because the market is too bad to sell -- that has affected everyone across the country -- but in our area we're also getting stuck with lower rent specifically because the DoD lowered BAH rates.

Did they really think this one through?

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