Review of DOD's Economic Analysis of Overseas Housing Costs

Pursuant to a congressional request, GAO reviewed the quality of the military services' economic analyses of the most cost-effective alternative for satisfying military family housing requirements in Europe.

GAO found that the quality of the three analyses that the Army, Navy, and Air Force made were poor because of: (1) the large variety of problems; (2) the high frequency of problem occurrence; and (3) the effects of the problems on the major conclusions of the analysis. The review showed that: (1) although the Navy concluded that straight leasing was the least expensive alternative, lease-with-purchase was less costly; (2) the Army incorrectly concluded that using U.S.-manufactured housing erected overseas would cost more than leasing; and (3) the Air Force study did not fully analyze the financial viability of the build-to-lease alternative it found to be the least costly. GAO also reviewed the new guidance the Department of Defense (DOD) issued for preparing these foreign housing analyses and determined that it would have only slightly improved the quality of the analyses. GAO believes that DOD needs to issue additional guidance on conducting economic analyses of overseas family housing. DOD disagreed with the review conclusions, alleging that: (1) the analyses were not representative of the current quality of economic analyses; (2) the inflation and exchange rate expectations were site-specific historical data; (3) only an economic analysis could determine whether build-to-lease was less costly than military construction; and (4) the analyses were incorrectly characterized as poor due to the use of inappropriate interest rate discounting.