The article is short on details but I can't see this as anything other than a sad joke. If Santa Cruz is anything like a typical college town then there are buildings on campus or nearby that could be repurposed for this problem. Certainly there is money somewhere that could be used to purchase space (even though real-estate is at a premium) for this problem. After all, the University will have far more access to funds or loans.
However, that would come at a cost of the profits.
How myopic for them to even consider professors housing students to be an option.