Editor’s note: This article is a part of our ongoing series on the many factors driving Hawaii’s high cost of living, and what can be done about it.

On an island as expensive as Oahu, military personnel enjoy privileges that stand out to plenty of struggling middle-class residents.

People in the armed forces can fill their fridge with groceries from subsidized commissaries, eat at restaurants and shop at stores on base where the general excise tax does not apply. Off-base, they get discounts on things like vacations, local sporting activities and movies. Some return to school on military scholarships.

But the greatest financial reward many enjoy on Oahu is almost certainly the large amount of tax-free money they can tap into for off-base housing. A low-level enlistee receives $2,190 per month, if she or he has no family, or as much as $2,922 to cover housing with three dependents — if allowed to live off base. At the high end, for a brigadier general or rear admiral — depending on which part of the armed forces they are in — the monthly payment is $3,858 without dependents, and $4,347 for a family of four.

That is a whole lot of money for rent and utilities compared to what most people in the state can afford. The average “basic allowance for housing” in 2015 surpasses the cost of a three-bedroom fair-market home by $850. That discrepancy is eight times larger than it was just four years ago.

Thousands of military personnel who don’t live in on-base housing use housing allowances to rent off-base homes. These homes are off the Nimitz Highway.

Cory Lum/Civil Beat

The BAH is supposed to cover housing and utilities for a good-quality rental within an hour’s drive, in traffic, from work.

Housing allowance money is better for military personnel than their salaries because it is not taxed as income; it is paid in addition to taxable salary and other payment supplements, like the military’s cost of living adjustment. And those who tap into it to pay for privatized or civilian housing can keep what they don’t use.

Since military personnel enjoy housing allowances above fair market rents, they are at a competitive advantage over most locals in the search for housing. And their advantage is growing.

For people in the armed forces, the housing allowance system has a strong logic, particularly on islands where housing is so expensive and where thousands of military personnel don’t live on base. Such people arrive, often for stints of a few years, and they need to be able to do fulfill their duty without unnecessary hardships or financial distractions.

Personnel with several children sometimes tap into the civilian rental market on Oahu to get housing with at least three bedrooms when there isn’t enough such housing on base, or when it isn’t good enough, according to real estate experts familiar with military housing. Some singles or mid-rank couples decide to live off base for other reasons.

But there is a problem, from a cost-of-living point of view, for civilians. There are thousands of military households in Oahu’s off-base rental market, meaning they take up housing that might otherwise help to satisfy local demand for rentals.

This is one of the many interconnected social, economic and geographic factors that help explain why Hawaii has the most expensive median rental prices in the nation, and why Honolulu is the epicenter of the state’s affordable housing crisis.

The high housing allowances place military personnel at a competitive advantage over most locals in the search for housing. And their advantage is growing.

The average housing allowance for people who rank high enough to live off base has long floated above fair market rental prices. But as recently as 2012, the gap was just $91. Over the next three years, the disparity jumped nearly nine-fold to $850.

The housing allowance is outpacing market rental prices like never before, according to real estate analyst Charles Wathen. The BAH — which is recalculated every year, usually upward — is a “lead indicator of where rents are headed,” he said.

Put another way: Where the housing allowance goes, rents will follow.

Infographic by Marina Riker

The Upward Housing Spiral

There are many reasons why landlords prefer military renters, beyond their ability to agree to a larger rent on arrival.

The nature of the housing allowance also means there is little question about military personnel skipping payments, given that the Department of Defense pays them regularly to cover the costs of housing and utilities.

And later, landlords contemplating raising rents can simply pull up the new housing allowance on an online BAH Calculator to see how much extra money their tenants have been allotted.

Even if landlords aren’t so savvy, or cynical, their military tenants might be more likely to stomach rent increases thanks to the housing allowance.

When rents rise, regardless of why, they get calculated into the next year’s housing allowance. And if military personnel accept higher rents than locals — if only because their BAH allows them to — the cycle continues.

Beyond that, it is easier for a landlord to put pressure on a military tenant who misbehaves via a call to the renter’s base commander.

A preference for military renters in some areas, along with the nature of a rising housing allowance in a tight rental market, can facilitate inflationary momentum. When rents rise, regardless of why, they get calculated into the next year’s housing allowance. And if military personnel accept higher rents than locals — if only because their BAH allows them to — the cycle continues.

Civil Beat reached out to several landlords who rent to military personnel, but none was willing to speak on the record.

It would be discriminatory and — and, therefore, illegal — for landlords to give military personnel preference in housing. But a number of real estate agents said that there is no doubt that it happens, and some advertise directly, and exclusively, to men and women in the armed forces.

Monthly housing allowances for the highest and lowest ranking personnel have nearly tripled, according to data from the Department of Defense.

Why Some Landlords Like Uniforms

The attractiveness of military renters explains why, real estate agent David Nash of Sachi Hawaii says, “A lot of my clients target the basic housing allowance level.”

Nash spoke of potential perversions of real estate markets when the BAH is given to enough people in a given market and it gets out of sync with local prices. When it is too low, it can harm service members who struggle to pay for housing, or it can get too high and waste Department of Defense money and skew local real estate markets.

In Honolulu, where there isn’t enough housing that residents can afford, Nash said, “The basic housing allowance hurts competing renters.”

Basically, any economic force that artificially out-competes local salaries worsens the situation for many residents.

It isn’t as though the Department of Defense wants to overpay for any component of housing, which is a major cost in places like Hawaii. It has many incentives to keep prices down, especially in a time of tight military budgets, and it took 1 percent off of the value of the total BAH this year, with additional 1 percent reductions planned for 2016 and 2017. (Inflation will likely compensate for those percentage reductions, meaning the overall amount is likely to increase, only less so.)

If housing were cheaper for the military, it could help alleviate cost pressures amid talk of force reductions. Each year, the Department of Defense examines the cost of living of areas around bases — surveying things like the price of housing, fuel, utilities, food and other goods — and calculates how much to adjust the housing allowance.

But in the end, the Department of Defense needs for its personnel to slightly out-compete, the rest of the rental market, which is rarely a low-cost endeavor in the islands.

The Costs for Renters

Civil Beat contacted the various branches of the armed forces earlier this year and calculated that there were at least 22,000 military personnel and their families living in off-base housing in Hawaii, with the vast majority on Oahu.

Real estate analyst Ricky Cassiday said that if most of those people live in three- and four-bedroom homes, that would add up to at least 5,500 rental units — and perhaps far more — even after subtracting for the number who have purchased their homes.

If enough renters moved back to their military bases so that 5,500 rental units were liberated, it would have a substantial impact on rents on an island where there are about 140,000 rentals. And the impact would be most concentrated in the areas where military households currently live.

Cassiday estimated that the impact on rental prices for three- and four-bedroom homes could conservatively amount to 8 percent. On a $3,000 house, that would add up to a monthly rent reduction of at least $240.

University of Hawaii West Oahu economist Lawrence Boyd has calculated that a theoretical 20 percent increase in Oahu’s overall housing supply — whether through the production of more housing or accessing already existing places — would result in a 12 percent drop in rents.

But Boyd’s numbers don’t account for the impact in any specific range of housing, like three-bedroom rentals, where dramatically greater availability could be felt more intensely.

Military Payback

Many intertwining factors have conspired to generate Hawaii’s crisis in low- and mid-priced housing. Basically, any economic force that artificially out-competes local salaries aggravates the situation.

Multi-millionaires who show up in Hawaii with lots of cash in hand can often outbid locals, driving home prices up, which tends to spur rents to follow a similar trajectory. The military can do much the same by infusing large amounts of above-market value money directly into the rental market.

The military’s impact on off-base housing isn’t likely as troubling as that of people who buy what have been middle-class homes here as vacation getaways, or others who use the housing stock as short-term vacation rentals. Both of those actions effectively eliminate housing from the local rental market. The impact of military personnel renting civilian housing is likely to be shorter-term given that many people are only here for a few years.

“There is no reason why the public should let the public sector sit on all sorts of valuable land, and let weeds grow on them, while the homeless public lives in the weeds.” — Ricky Cassiday, real estate analyst

But the combined impact of these and other factors — like when authorities permit developers to wiggle out of agreements to build affordable housing they have committed to — is that rental prices eventually climb a rung or two. And when they do, much of Hawaii’s middle class, whose salaries have stagnated in real terms for decades, loses more ground to rising rents.

In terms of off-base housing, there is a peculiar irony to the military’s role in pushing rents up. If you are a renter of a fair market home on Oahu and you earn enough income to pay federal income tax, a portion of that money goes to the Department of Defense.

And a tiny fraction of it might go to the military’s housing allowances that allow off-base personnel to compete — and win — in a rental market like yours.

Military personnel live in tens of thousands of homes on and off bases around Oahu, including here at Radford Terrace Military.

Cory Lum/Civil Beat

None of this would be much of a problem if Hawaii, and especially Oahu, had more housing, or fewer people seeking the housing that exists.

Some people are convinced the solution is to dramatically shrink the armed forces or push them out altogether — both of which are unlikely given the current geopolitical vision in Washington, D.C.

But what if we assume the military will be here for a while, and acknowledge its capacity to help generate more housing?

After all, a big on-base housing renovation project in the middle of the last decade, in collaboration with private developers, succeeded in convincing many service members to move back to the base because they got better housing for their money, according to Cassiday.

The real estate analyst, who authored a report that addressed the impact of those military housing improvements on the civilian rental market, notes that the armed forces could have built a lot more affordable housing. They did not, he said, partly out of deference to landlords who feared falling rents. (The cost of building such housing may also have been a factor.)

Given the sharp increase in prices in the civilian rental market since then, he argues that military housing planners, particularly for the Army, should do exactly what they didn’t do last time: dramatically expand their on-base housing stock.

“They have taken pressure off, but they can take off more,” Cassiday said. “They build nice housing on base. It is very competitive. And if they built more, it would take pressure off the civilian housing market.”

In the big picture, he added, “There is no reason why the public should let the public sector sit on all sorts of valuable land, and let weeds grow on them, while the homeless public lives in the weeds.”

• Anita Hofschneider contributed to this report.

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