The Department of Defense (DOD) spends about $8 billion annually to provide housing for families of active-duty military personnel. Seeking to provide military families with access to adequate, affordable housing, DOD either pays a cash allowance for families to live in private-sector housing or provides housing by assigning families to government-owned or government-leased units. The housing benefit is a major component of the military’s compensation package. DOD policy manual 4165.63M states that private-sector housing in the communities near military installations will be relied on as the primary source of family housing. The policy states that government housing may be programmed when the local communities cannot meet the military’s need for acceptable and affordable housing. Government housing is also provided for a small number of personnel, often fewer than 15, that reside on an installation for reasons of military necessity. DOD policy further states that installation commanders are responsible for the housing program at their installations and have broad authority to plan, program, and determine the best use of resources. About 605,000, or two thirds, of the military families in the United States live in private housing. These families receive cash housing allowances to help defray the cost of renting or purchasing housing in the communities near their installations. Housing allowances, which totaled about $4.4 billion in fiscal year 1995, cover about 80 percent of the typical family’s total housing costs, including utilities. The families pay the remaining portion of their housing costs out of pocket using other sources of income. Military families receive assistance in locating private housing from housing referral offices operated at each major installation. Housing allowances consist of the basic allowance for quarters and the variable housing allowance. The basic allowance amount varies by military paygrade and is paid to all service members in the United States that do not occupy government quarters. The variable allowance varies by paygrade and by geographic location and is paid to members who receive the basic allowance and live in high-cost areas of the United States. The variable housing allowance was designed to equalize members’ out-of-pocket housing costs across locations in the United States. In 1985, the Congress adjusted housing allowances so that the out-of-pocket costs would be 15 percent of average housing costs. However, the typical out-of-pocket amount today is about 20 percent because increases in housing allowances have not kept pace with housing costs. The remaining 293,000, or one third, of the military families in the United States live in government-owned or -leased housing. These families forfeit their housing allowances but pay no out-of-pocket costs for housing or utilities. In fiscal year 1995, DOD spent about $2.8 billion to operate and maintain government-owned and -leased family quarters. In addition, about $724 million was authorized to construct and renovate government family housing units in fiscal year 1995. In fiscal year 1996, the authorization amount increased to $939 million. According to DOD, the majority of the existing inventory of government-owned family housing is old; lacks modern amenities; and needs major repair, renovation, or replacement. DOD estimates that over 200,000 of the existing houses do not meet current suitability standardsand need to be fixed up or closed. DOD estimates that the cost to modernize the existing family housing inventory is about $20 billion. Table 1.1 summarizes by service the number of families living in private-sector and government housing. Separate DOD organizations manage the two key components of the family housing program—allowances and government housing. Housing allowances are the responsibility of the Under Secretary of Defense for Personnel and Readiness and primarily are managed centrally at DOD headquarters by the organization responsible for all compensation issues, including basic pay and other types of allowances. This organization is the focal point for policy matters and initiatives related to housing allowances. Government-owned and -leased housing is the responsibility of the Under Secretary of Defense for Acquisition and Technology. Although DOD headquarters establishes overall management policy for government housing, primary management responsibility is delegated to the individual services, their major commands, and individual installations. As the nation’s largest landlord, the DOD infrastructure supporting the oversight, operation, maintenance, and construction of government family housing is very large, involving many thousands of government and contract employees. DOD recently placed increased emphasis on improving the quality of life of military members and their families. Because housing is viewed as a key factor affecting quality of life, DOD initiated plans to improve the family housing program. For example, with the support of the Congress, housing allowances were increased for fiscal year 1996 to reduce the average out-of-pocket amounts paid for housing in the civilian community. Increased funding also was approved for construction and modernization of government housing units. The Congress is considering similar actions for fiscal year 1997. Recognizing that the majority of existing government housing units are old and need major improvements, the Congress also approved DOD’s request for new authorities in fiscal year 1996 to test ways to encourage private developers to build and improve housing that would be available to the military. By promoting use of private capital, the goal is to improve military housing more quickly than could be achieved through normal military construction funding. DOD established the Housing Revitalization Support Office to oversee implementation of the new program, and the first projects are expected to be approved by the end of fiscal year 1996. In an October 1995 report, the Defense Science Board Task Force on Quality of Life reported that the military’s housing delivery system was intrinsically flawed. Among many recommendations to improve the housing program, the task force recommended establishment of a military housing authority to manage DOD housing using private housing industry management principles and practices. DOD has evaluated the report and has begun planning to implement some of the recommendations such as improved housing referral services. DOD did not have immediate plans to request authority to implement a military housing authority. We reviewed DOD’s military family housing program in the United States to determine whether (1) DOD’s policy of relying primarily on private housing to meet military family housing requirements is cost-effective, (2) the military services are complying with this policy, and (3) DOD’s family housing policies result in equitable treatment for all military families. We performed our review at the DOD, Air Force, Army, Navy, and Marine Corps headquarters offices responsible for overseeing housing allowances and for managing military family housing. We also performed work at the Housing Revitalization Support Office; the Per Diem, Travel and Transportation Allowance Committee; the DOD offices responsible for quality of life issues, retention, and recruitment; the Air Force’s Air Combat Command; the Army’s Training and Doctrine Command; the Commander-in-Chief, Atlantic Fleet; and the Naval Facilities Engineering Command, Atlantic and Southwest Divisions. At each location, we interviewed responsible agency personnel and reviewed applicable policies, procedures, and documents. We obtained and analyzed detailed housing requirements and availability information from 21 Air Force, Army, Navy, and Marine Corps installations that manage government housing. The 21 installations were selected judgmentally to obtain a cross section of installations by service, by geographic location, and by reported family housing availability. We also included 6 of the 10 installations identified by DOD in May 1995 as areas with the greatest shortfall of affordable housing. We visited 8 of the 21 installations, 2 from each service, to review in greater depth the family housing conditions at each installation, including family housing requirements, available private-sector and government housing, housing referral services, and government housing construction and renovation plans. We also toured government-owned housing at these installations. Appendix I identifies the installations included in our review. To determine the cost-effectiveness of DOD’s policy of relying primarily on private-sector housing, we compared the government’s reported costs for families to live in private housing with the government’s reported costs for families to live in government quarters. To do this, we reviewed prior DOD and other agency reports on military housing costs and analyzed reported military costs for each housing alternative in fiscal year 1995. To determine the military services’ compliance with the DOD housing policy of relying on private housing, we analyzed Army and Air Force summary data on installation family housing requirements, civilian housing availability, and government-owned housing inventories. The Navy and the Marine Corps did not accumulate comparable data. We also reviewed the family housing situation in detail at the 21 selected installations to determine whether the installations were relying first on private-sector housing to meet military housing requirements. For installations that did not appear to be in compliance with the DOD policy, we explored the reasons for noncompliance. To determine whether DOD’s family housing policies result in equitable treatment for all military families, we compared housing costs for military families that live in private housing and in government housing. We also reviewed the government’s reported cost of the housing benefit provided to service members in the same paygrade when living in private and government housing. Our review was performed between May 1995 and June 1996 in accordance with generally accepted government auditing standards. Studies by the Congressional Budget Office (CBO) and DOD show that the cost to the government is significantly less when military families are paid a housing allowance and live in private housing. These studies and our analysis estimate that the cost difference to the government for each family that lives in private housing, instead of government housing, ranges from about $3,200 to $5,500 annually. The difference is primarily due to three reasons. First, the government pays about 80 percent of the housing costs for a family that lives in private housing compared to paying 100 percent for a family in government housing. Second, the government pays significantly less federal school impact aid for military dependents when they live in private housing, which is subject to local property taxes. Third, the private sector generally can build, operate, and maintain a family housing unit at less cost than the government.