The PAC was also critical of the military being "slow" to react to changing social attitudes.
It said that only those who are married or in a civil partnership are "entitled" to accommodation, whereas those in long-term relationships only remain "eligible".
Ms Hillier also urged the MOD to "urgently reduce" the number of empty properties it holds while thousands of people nationwide sit on waiting lists.
Nearly one in five MOD properties, which adds up to 10,000, lie empty, according to the report.
The watchdog also called on military bosses to "negotiate hard" on taxpayers' behalf when negotiating future rent levels with the private housing provider it sold its estate to.
That sale, in 1996, was criticised by the PAC as having "badly let down" taxpayers.
An MOD spokesperson said: “Providing good quality accommodation is one of our top priorities, and we are determined to improve the experience of service personnel and their families.
“We are investing more than £80 million a year to improve the quality of our homes, while building over 1500 new properties for service families.
"We are also modernising the way we provide accommodation, introducing new measures to support co-habitation and a pilot scheme that will test how we can incorporate privately rented homes into our accommodation offer.”