Government/Military Trends
November 2003
Delivering Home Sweet Home Through Private-sector Partnerships
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Housing the nation’s military troops is no small task, and the Department of Defense (DoD) has long been aware of the enormity of the challenge it faces. Dwindling budgets, a significant shortage of affordable private housing for service members and their families, and a growing pool of aging units — 60% of the DoD’s current inventory — that must be renovated or replaced have all led the DoD to become more creative in finding ways to provide housing for its military personnel.
A new approach has definitely become vital since, according to the DoD, the cost of accomplishing the tasks necessary for fixing its housing crunch using traditional military construction methods would cost nearly $16 billion dollars. Additionally, such a project would take at least 20 years to complete.
As a potential answer to this situation, in 1996, Congress passed the Military Housing Privatization Initiative (MHPI) as part of the National Defense Authorization Act. The goal of the program was to reduce the amount of time and cost needed to build new housing by allowing the DoD to partner with private builders. The partnerships would let the DoD receive the benefit of faster build times that comes from constructing houses using private-sector processes and organizations. And, since typical private-sector construction projects costs less than those undertaken using military construction processes, the DoD would be able to get more for its money as well.
But even more importantly, the MHPI authorized the cash-strapped DoD to leverage private sector funds to pay for new housing and renovations. It is now able to do this through several different avenues:
- Guarantees. The DoD can guarantee mortgage payments or provide limited guarantees against military base realignments or closures, force reductions, or major deployments. It can also guarantee rent and occupancy levels.
- Conveyance/Leasing. The DoD can convey or lease housing units to developers to help finance privatization projects.
- Differential Lease Payment. The DoD can pay the difference between market-rate rents and military personnel’s housing allowances.
- Investments. The DoD can make investments in housing projects through limited partnerships, loans, bonds, or mortgages.
- Direct Loans. The DoD can loan money to private-sector developers for military housing projects.
Since it was rolled out in 1996, each branch of the military has adopted the program. Each organization may call the privatization process by a different name — for the Army, it’s called the Residential Communities Initiative1, the Navy and Marines use the term Public/Private Venture2, and the Air Force calls it Housing Privatization3 — but they have all jumped on the bandwagon. Off to a slow start at first, the awarding of privatization contracts has definitely gained steam. Since 1996, privatization projects that include more than 45,000 housing units have been awarded, and projects that include more than 100,000 units are waiting to be awarded or are in the planning stages.
Originally authorized for five years, the MHPI was recently extended to run through December 31, 2004. The DoD is now planning on expanding the privatization program from just family housing to also include barracks and military dorms.
1Residential CommunitiesInitiative http://www.rci.army.mil/
2Public/Private Venturehttp://ppv.myhsg.navfac.navy.mil/
3Housing Privatizationhttp://www.afcee.brooks.af.mil/dc/dcp/news/