Why CCRI Should Stop Moralizing and Rationalize its Rents

Campus Co-op is a co-operative in financial straights. “Rejuvenation”, its former plan to build new properties to support its aging houses, was abandoned and not replaced. It is unclear at present how it will raise the necessary revenue to keep its houses from degrading to slum condition. Its financial position is currently cripped by losses from high summer vacancies (i.e. rents not collected on rooms not rented). These losses have increased from 80,000$ a year in the 90’s and early 2000’s to a current budgeted level of 250,000$. For CCRI residents this has meant coping with large increases to their rent, to the point when it can no longer be said that CCRI is a cheaper, better alternative to the private rental market. These rent increases have largely been justified as the duty of current members to support the co-op for the benefit of future generations. However, when the rent increases come to mean raising rents to above market-level, (and CCRI experiences the corresponding and foreseeable decline in revenue) the moral argument breaks down and it morally required to think rationally about the market conditions in order to set rental rates appropriately.

To an extent, the problem of decay of CCRI houses century homes is inevitable. Previous large scale investments into the houses were only made possible due to government programs which effectively subsidized large structural repairs (i.e. CMHC’s grant of 370,000$ to CCRI in 1985). However specific irrational actions by CCRI have greatly exaggerated its own problems over the last decade. To understand why, it must be grasped that CCRI sells two products: school year rental housing, and summer rental housing. During the school year CCRI membership is restricted to current students, and during the summer the housing is open to anyone willing to pay rent. These are two different products because they sell to different markets, they have different elasticities (in a highly elastic market, demand reacts quickly to changes in pricing – vice versa for inelastic), and they respond to different sets of competing goods. However, despite this obvious economic reality, CCRI has for time everlasting held to the dogma that its school year rental prices should be the same as its summer rental prices. The fact that CCRI reports projected earnings and actual income to the membership with a single yearly figure, rather than by term, serves to conceals the absurdity of this dogma from the membership.


When one looks at the month to month data more carefully, the problem is clear: for the last several years, the increased rent at CCRI has been reflected in actual increases in revenue during the periods from September to April. However, in the summer, the actual earnings have steadily declined despite (or rather, due to) these higher rents. This can easily be explained if one recognizes that summer and winter rents are different products, and thus have a different price at which their demand and supply curves intersect (i.e. the point of profit maximization). It is a simple truth for classical economics that if one sets the price too high, every further increase in price will reduce profit. Modifications in the price of a good will only increase profit if that modification moves it closer to the ideal price point.


It is not obvious that CCRI’s summer rental prices were significantly below market, even as far back as 2002. This hypothesis is supported by the data which shows demand (i.e. the number of summer renters) strongly dropping off as summer princes increased. Price is not the only issue here: at the same time, U of T had recently built a glut of new student housing, which greatly increased the supply of cleaner summer student housing downtown. CCRI did not respond to this increase in market supply for summer housing with either a significant effort to increase the cleanliness of its housing (i.e. by hiring housekeepers), or by lowering rents. To make matters worse, CCRI began charging non-students extra surcharges to live in CCRI during summer months only. This lack of attention paid to the elasticity of summer demand reached its high point in 2009 when summer vacancy losses topped 350,000$.


To understand CCRI’s logic in this irrational price setting it is necessary to recognize that when one sets the price of a good or service below the optimal price point, every increase in price will in fact produce an increase in revenue. So, if a co-operative is under the market price, (as a cooperative which claims to be affordable in downtown Toronto rightly should be!) any increase in price will correspond to an increase in revenue. In this situation, it may be considered appropriate to moralize a rent increase, i.e. “we’ve been irresponsible, so we need to raise rents”. However, when current rents are level with the market price, one should not straightforwardly assume that further increasing rents will result in increased revenue. Thus, when rents are level with the private market, it makes no sense to moralize about the need for higher rental costs – since higher costs will likely result in lower revenues anyway. In 2010, it is not obvious that CCRI’s winter rents are any longer below market, and it should assume that further drastic increases in rent may very well result in lower winter rental revenues.


The defeat at this year’s Spring General Membership meeting of the proposed 4% rent increase as of May 1st 2010, and its replacement with a 2% rent increase as of September 1st 2010 is the first step forward to thinking rationally about CCRI rental revenues. The second step is to separate winter from summer rent such that they must be raised separately, and that projected earnings and actual revenue for summer must be reported to members as a separate item in the CCRI budget.

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20 thoughts on “Why CCRI Should Stop Moralizing and Rationalize its Rents

  1. The arguments presented here seem to be based on a very rudimentary knowledge of economics. Where’s the justification for declaring summer housing to be differently elastic than winter housing?

    Also, given the other factors affecting the co-op’s revenue, reducing the rent increase to 2% has actually resulted in a revenue decrease over the previous budget year, not a 2% increase. The 4% proposal was decided on by a committee of members and finalized by a board of members who had the fact in front of them.

    Strangely, I also seem to recall that you were personally voting for these rent increases in the past when you served on Campus Co-op’s board.

    Surely it’s also possible to recognise that one factor leading to vacancy loss is the kind of publicity that grand-standing members of the co-op choose to publish for the general student body. These debates could be reasonably had within the co-op community.

  2. “Where’s the justification for declaring summer housing to be differently elastic than winter housing?”

    Because it responds differently to increasing prices? Look at the projected versus actuals for the last ten years! Every year, our winter actuals go up, and summer actuals go down. That’s a pretty strong indication of the elasticity!

    “Also, given the other factors affecting the co-op’s revenue, reducing the rent increase to 2% has actually resulted in a revenue decrease over the previous budget year, not a 2% increase. The 4% proposal was decided on by a committee of members and finalized by a board of members who had the fact in front of them.”

    The budget doesn’t “result” in anything but a projection. What the actual revenue is depends on how the market responds to prices, as well as other factors. The 4% proposal was pushed through by a staff which refuses to recognize the realities of the housing market.

    “Strangely, I also seem to recall that you were personally voting for these rent increases in the past when you served on Campus Co-op’s board.”

    You’re right. I was duped when I was on the board into thinking we could ignore our own bylaws. I was wrong. I’m responsible for that, and I take that mistake seriously. The current board should take their own fraudulent budget seriously as well.

    “These debates could be reasonably had within the co-op community.”

    I don’t think it’s unrealistic to speak the truth to the community at large, especially if that means reaching a much greater part of the co-op community than come to finance committee meetings (yawns!).

  3. The central fabrication of the current budget is that it could possibly be “balanced”, and that increasing out debt is some kind of metaphysically unacceptable possibility. Our debt is really increasing every year we do not contribute to our solid asset revival. We really pay interest on this debt every time a roof collapses (twice in the past year). Taking our current financial situation seriously means recognizing that we cannot raise from rents the money we need to repair our houses. We used to have a plan to do this, but, now we just have sad attempts to preserve a dying status quo.

  4. I think you had better go back to the drawing board on what constitutes evidence of elasticity. In order to draw a conclusion about summer student housing in Toronto, you would need to have numbers from all of the providers of that product and they would have to indicate the same thing (at very least).

    Down to brass tacks:
    Revenue is not a projection of how much the co-op might take in, it’s a statement about the maximum amount of money the co-op could have in revenue with all the rooms fully rented. Vacancy is a separate budget item.

    With a 2% room rate increase we have to budget for 2.5% less revenue overall than we did last year. If the expenses for the year are increased by 1.8% (the CPI), that means you’re expecting the vacancy to drop by about 40% this year.

    Please explain to me how a difference of around $10/month in rent is going to drop the vacancy rates by 40%.

  5. Revenue is money you actually take in. a ” statement about the maximum amount of money the co-op could have in revenue” is not revenue, this is obvious from the fact you used revenue in the definition. If you had to use revenue to define revenue, you are either saying nothing meaningful at all, or you are talking about something else.

    A “statement about…” is projected revenue. In fact, that’s not even right, is it? The real projected revenue is the projected revenue minus the vacancy loss. Any normal person would understand that “projected revenue” is the amount of money you project to actually take in.

    Any rent discount, any one at all, needs to be thought in terms of maximizing the real revenue – the amount of money you really take in. All this talk about projected revenue is incredibly confusing, because we project this huge amount of revenue, which we are not actually budgeting to take in. And then, it looks as if the discounts have to somehow fix our entire vacancy loss, rather than just improve our real revenues.

    This accounting practice is seriously misleading to any normal members trying to understand the situation.

    The real issue is maximizing profits in all the different markets we participate in. There are at least 2 products the co-op offers: summer, and winter housing. If I have to convince you as to why these are different products, you’re just being a jerk.

    Now, it’s actually more complicated than this – in the summer the co-op is not homogeneous: the discounts last summer had more of an effect on the meal plan division than the non-meal plan divisions. This year we’ve decided to concentrate the discounts on the meal plan divisions specifically, and give them some form of housekeeping service.

  6. “Please explain to me how a difference of around $10/month in rent is going to drop the vacancy rates by 40%.”

    My concern was that an increase of 4% would result in a significant vacancy loss in September. Of course we haven’t predicted this – but we’ve never imposed such a strong rent increase when we were at or above market prices. Because, we’ve never had such high rents before.

    We can’t assume things in the future will always be like things in the past. We are situated at a different point in the market now, and can’t assume that raising rents during the winter will raise winter revenues. Raising rents above the market rate lowers revenues, on average. That’s why it’s called the market rate.

  7. ” In order to draw a conclusion about summer student housing in Toronto, you would need to have numbers from all of the providers of that product and they would have to indicate the same thing (at very least).”

    That’s just not true. You can look at data specific to your own product to find evidence of elasticity. Elasticity just means the market is responding to price changes. Everyone believes that all markets respond to changes in price with increased or decreased demand.

    And that’s what we did tonight, under Penny’s guidance, at the finance meeting. She explained that the meal plan divisions do seem to respond to the lower rents with lower vacancies, and there were no effects on the other divisions. It makes sense to take this data and move forward with more significant cuts in those divisions, and no new cuts in the divisions where the cuts are not helping.

  8. “In order to draw a conclusion about summer student housing in Toronto”

    Since when is our summer market summer “student housing”? We market to summer students, students, summer travellers, summer workers, and now travellers to specific events i.e. Pride, G8/G20 protestors etc…

  9. One way to get some data would be to run a trial.

    You could discount rents to differing degrees at various houses, and then see which setup maximizes revenue.

  10. I thought there was some kind of problem with this suggestion, but I can’t actually express what it is.

    Maybe this is a good idea.

    I tend to worry about sample sizes becoming so small that it’s impossible to know whether increased renting was caused by the price or by contingencies about how nice that house looked on room tours.

  11. “Please explain to me how a difference of around $10/month in rent is going to drop the vacancy rates by 40%.”

    This has to be thought in both directions. You can assume that during the school year, vacancy with a 4% increase will remain 3%, and then it’s me that has to explain why a 2% lower rent increase will not result in lower revenue.

    But on the other hand, that just might be untrue – and a 4% increase might result in unbudgeted vacancy loses.

    Unbugeted? What? You mean the budget doesn’t actually force people to move in!

    Man, there must be something seriously wrong with the way we think about our members if we think there is a causal relationship between what we budget and what will actually happen.

    The fact is, if we raise our rents above market, we can no longer assume our winter vacancy rates will remain at 3%.

  12. I tend to worry about sample sizes becoming so small that it’s impossible to know whether increased renting was caused by the price or by contingencies about how nice that house looked on room tours.

    You could look at the occupancy stats house by house. You could look at how the vacancy percentage changed in each, and compare the houses with bigger discounts to those with smaller ones.

  13. You could regress the percent change in occupancy against the percent change in rent, and then establish at various confidence levels whether the discounting has an effect on quantity demanded. You could then work out what price level seems to optimize revenue.

    How many houses and rooms do you have in total?

    Also, are there any other organizations you might be able to get data from?

  14. “You could look at the occupancy stats house by house. You could look at how the vacancy percentage changed in each, and compare the houses with bigger discounts to those with smaller ones.”

    Sure, but I’d be afraid the confidence levels would end up being too low to be significant.

    I think it’s better to treat our houses in blocks of similar ones, rather than each individually. We’re also concentrating this year on keeping the houses much cleaner during room-tours, hopefully this should improve things.

  15. It might improve occupancy, but it would make it harder to know whether the discounts had any effect. Ideally, you would only want to vary that.

    Also, it seems a bit dishonest the clean the houses specially, just for when people tour them. It might give them a false sense of how clean they usually are.

  16. The cleaning will be continuous over the summer, as will room tours, so it’s not actually dishonest I think. I failed to communicate that adequately, however.

  17. It seems that
    1. CCRI determines its rents to some degree on the basis that it serves a larger social good
    2. it has operated for at least 25 years.
    3. It is in financial straits.

    I also assume that:
    1. earlier in time it determined its rent to some degree on the basis that it serves a larger social good
    2. there have been thousands of members of the CCRI over the past 25 years or more
    3. those past CCRI members
    a. can be to some degree identified
    b. while members from the lower rents when they were members.
    c. have moved on to higher incomes and presumably higher disposable income

    Has CCRI considered going to past CCRI members to advise them that CCRI is in financial straits and asking them to make contributions to CCRI to help overcome the financial straits? That might provide some insight into whether the greater moral good used to justify lower rent results in greater philanthropy from the people who earlier benefited from the good extended.

    Also it would be interesting to compare the extent of philanthropy of the past summer and past regular student members. If one is larger than the other, then it may be some clue into which subsidy results in the greater level of gratitude later.

    If the result of such a request for funding does not result in any serious level of financial contribution from past members, this may also give some guidance as to whether the philanthropic rationale of setting the rental rates is the way to go.

    I find this situation interesting.

  18. Hi Oleh,

    I appreciate your interest. The argument I was trying to make is that today the moral aspect of rent increases is “we have mis managed the co-op, so we ought pay more”, and that this breaks down as we move into and above the market rate. The current situation is in my appraisal that our rates during the school year are market rate, and during the summer are above market rate.

    You are correct that CCRI has existed for many years – 75 years in fact. And, you are correct that there are many past members.

    It has been a priority established by the board for our staff to get into contact with alumni for the past several years. Little has happened. Next year is our 75th anniversary. You are quite right that pursuing donations from past members (ideally a few large ones which could pay for the large scale renovations we need) is an excellent avenue to pursue today.

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