On February 11, 1996, President Clinton signed into law the National
Defense Authorization Act for Fiscal Year 1996, containing authorities for the Military Housing Privatization Initiative (MHPI).
This act, Public Law 104-106 (110, Stat 186, Section 2801), includes
of authorities that allow DoD to work with the private
sector to build, renovate and sustain military housing. The goals are to:
Housing Problems—New Authorities
- obtain private capital to leverage government dollars,
- make efficient use of limited resources, and
- use a variety of private-sector approaches to build and renovate military
housing faster and cheaper for American taxpayers.
DoD currently faces two significant housing problems:
- The condition of DoD-owned housing is poor
- There is a shortage of affordable, quality private housing available
to Service members and their families.
Today's Military Living in Yesterday's Houses
Today's military is living in yesterday's houses. DoD currently owns 257,000 family housing units on- and off-base. About 60 percent need to be renovated or replaced because they have not been sufficiently maintained or modernized over the last 30 years. Using the traditional military construction approach, it would cost taxpayers nearly $16 billion and take 20 years to solve this problem. Furthermore, traditional military construction requires contractors to adhere to military specifications, which make projects significantly more costly than building to market standards.
Too Few Units On-Base, Too Few Affordable Units Off-Base
DoD policy is to rely on the private sector to provide suitable housing
for Service members and their families. The services have been directed
to acquire family housing only for families that can't find suitable housing
in the private sector.
This means the majority of service families live in local communities.
Most of them are families of enlisted personnel, whose salaries are at
the lower end of the military pay scale, making it difficult for them
to find quality, affordable housing within a reasonable commuting distance.
In addition, some of these communities, located in extremely rural or
metropolitan areas, do not have enough affordable, quality rental housing
to accommodate Service members and their families.
Information from the Past and Present Will Improve the Future
While the quality of existing on-base military housing has declined during
the last three decades, deployments and family separations have lengthened,
out-of-pocket expenses for Service members living in private housing have
risen, and demands on military personnel and their families have increased.
A DoD Quality of Life Task Force report confirmed these disconcerting
trends and warned that readiness and morale are in jeopardy. Continuing
to neglect these issues runs the risk of collapsing the force because
even the most dedicated Service members will decide to leave the military.
This is why MHPI is so important to DoD, Service members and their families,
and American taxpayers.
The National Defense Authorization Act for Fiscal Year 1996 provides DoD
with a variety of authorities that allow us to obtain private-sector financing
and expertise to improve our housing situation. These authorities can
be used individually or in combination and include the following:
- Guarantees, both loan and rental
- Conveyance or leasing of existing property and facilities
- Differential lease payments
- Investments, both limited partnerships and stock or bond ownership
- Direct loans.
These can be loan or rental guarantees. We can
guarantee mortgage payments, directly or through an intermediary, or
limited guarantee against base realignment and closure (BRAC),
force reductions, or major deployments. DoD can also provide guarantees
for mortgage insurance. Finally, we can guarantee rent and occupancy levels
as specified in an agreement.
- Conveyance or Leasing. DoD can convey or lease family housing
units to private persons for purposes of using proceeds to finance
- Differential Lease Payments. This authority allows DoD to
pay the difference between the negotiated rent and basic allowance
to make housing available to Service members.
- Investments. The
investment authority allows DoD to invest in nongovernmental entities
involved in the
acquisition or construction
of family housing
and supporting facilities. These investments can be in the
form of limited partnerships, for which DoD provides cash, land,
A limited partnership arrangement operates purely as a private
business: DoD has no part in the management. Although no
minimum cash contribution
has been set for any DoD investment in a project, there is
cash contribution. DoD may invest a maximum of 33.5 percent
of the capital cost of a project. Because all sites and projects
the services each prioritize their own projects, the full
33.5 percent cash contribution may not be needed in each project.
also has the authority to convey land or buildings as all
or part of its
investment. If it chooses this route, it may not exceed 45
percent of the total capital
cost if land or facilities are conveyed. For projects involving
renovation, replacement, and support facilities, DoD’s
total equity contribution may not exceed 45 percent of a
As a stockholder, DoD may be involved in the management of a
project without losing limited liability. DoD could have
over a project if it provides capital through a loan, bond.
- Direct Loans. DoD may offer a direct loan. The title, land,
and improvements remain with the developer.
Advantages for the Military, Venture Capital Opportunities for
the Private Sector
MHPI promotes a mutually beneficial relationship between
DoD and the private sector. For DoD, it results in the
built to market standards for less money than through
the military construction process. Commercial construction
is not only faster
and less costly than
military construction, but private-sector funds significantly
stretch and leverage the DoD’s limited housing
Developers and financiers can find significant venture capital
opportunities in DoD housing. Privatization opens the military
to a greater number of development firms. MHPI stimulates the
economy through increased building activity, and MHPI projects
a long-term continuous inflow of capital to an investor.
DoD allows as much flexibility as possible for developers and
financiers to create the best possible proposals. However,
we have identified
several broad guidelines to give offerors some direction. We
ensure our Service members and their families are properly housed on
and off military installations;
- leverage our funds with private capital;
- involve local governments to help with infrastructure, financing, permits
and use their knowledge of local developers;
- integrate projects with private-sector housing, with a mix of bedroom
- have housing projects developed within reasonable commuting distance
of military installations.
Project Solicitation and Development Process
The Services nominate installations that have large housing deficits
or need housing renovations. They visit and evaluate each site with
contracted private-sector finance experts, identify problems, determine
which authority best addresses site issues, hold industry forums to
introduce the project to the private sector, and then draft and issue
the solicitation. Once the solicitation is issued, the service holds
local preproposal conferences so officials may travel to the communities
and meet with developers and financiers, who may have questions and
want to learn more about the process and project specifics. The service
then reviews and evaluates the proposals and makes a selection. DoD
notifies Congress of the proposed contract. The contract is executed,
and the developer obtains final zoning, site plan approval, and financing.