A Guide to Student Housing Financing at UBC, Part 1

At their meeting next week, the UBC Board of Governors will be publicly discussing the university’s plan to increase winter session residence rents by 20%. In a demonstration of its commitment to transparency and accountability, the Board actually already met to talk about the rent increases this week, but did so behind closed doors. The real discussion and decision-making having taken place already, the Board has invited students (the AMS and RHA) to the meeting next week for some “accountability theatre”. In the lead-up to the board meeting, we’ll be publishing some old and new content about the student housing model used by UBC.

In 2012, the AMS produced a report about Student Housing and Sustainability. Co-authoured by Sean Cregten and Brittany Jang, it outlines how student housing at UBC is built and managed. The whole report is absolutely worth reading for anyone wondering about how UBC sets its rents. Below is an excerpt focusing on the overall financial model and what it really means when it’s claimed that UBC Student Housing and Hospitality Services is “cost-neutral” or “cost-recovery”.

Financing Costs

Student housing at UBC, which is run by Student Housing and Hospitality Services (SHHS), works on a cost-neutral model. This means that rental revenues are meant to be roughly equal to the costs SHHS has to pay to provide housing.

The costs of providing student housing can be split into two parts – operating costs, and capital costs. Operating costs cover everything that is necessary to keep housing running today, such as cleaning, maintenance, utilities and water, and staffing needs. On the other hand, capital costs are the costs associated with building residences, including loans and interest payments on those loans. Student rents cover both of these costs, which is why UBC claims that it has a cost neutral student housing system provided by SHHS.

It is absolutely true that SHHS works on a cost neutral basis when considered as a self contained administrative unit. However, a lot of the costs that SHHS has to pay come from other parts of UBC – especially when it comes to capital costs. Because SHHS is part of UBC, UBC can require it to use other UBC resources, whether or not there are cheaper options available.

As a result, if UBC chooses to pass costs on to SHHS at an inflated price, SHHS would have no option but to pay for these higher costs by charging students more in rent. UBC as a whole would then makes a profit off student housing, even though SHHS would remain cost neutral.

This has a serious impact on what students pay when it comes to construction of new residences. Under the current model, SHHS cannot borrow from normal external lenders, like banks. Instead, UBC requires SHHS to take out internal loans for building new residences from the UBC endowment, and charges profit seeking levels of interest on these internal loans of approximately 5.75%. UBC is lending to a part of itself and requiring a highly profitable return.

Because of the enormous expansion in the number of new residences under construction, the inflation of SHHS’ costs due to this profit seeking interest rate is substantial. In the 2011/2012 financial year, SHHS interest and debt repayments to the University were projected to be in excess of $26 million, out of total SHHS costs of $77 million. While $8 million was to pay back money that was borrowed, just under $18 million, or approximately 23%, was for interest payments alone.

The AMS recommends that the interest rate charged by the University on internal loans for student housing projects be removed or lowered, or distributed for student housing affordability initiatives.