Ben Tal Talks June Rate Cut and AI Job Threats at CBRE Outlook Event

March 1, 2024 7 Minute Read

Benjamin Tal speaking at the 2024 CBRE Canada Market Outlook

The Bank of Canada (BoC) should begin to cut interest rates by June, dropping from 5.0% down to 2.75% by mid-2025.

That was the prediction offered by CIBC World Markets’ Benjamin Tal during a one-on-one conversation with CBRE Canada President & CEO Jon Ramscar at CBRE’s Market Outlook Breakfast in Toronto on Feb. 26.

“Last year we discussed the need to remove taxes from purpose-built rental housing and now it’s becoming policy thanks in part to efforts by our friends at REALPAC,” Ramscar noted. “So this conversation should give us all a good sense of what comes next.”

For the many real estate industry members in the room longing for lower interest rates, Tal told Ramscar that the central bank is dead set on seeing inflation drop to its 2.00% target before making cuts.

“We can argue until we are blue in the face about whether 2.00% is the right target number,” he said. “I actually think a higher inflation number is better.

“But it won’t change the way BoC is looking at this. You can’t convince them to change their mind. Interest rates will need to be higher for longer if 2.00% is the target. I think BoC is overshooting here by design.”

‘Simply Crazy’

Tal pointed out that inflation prospects would look better if BoC didn’t factor in shelter-inflation costs.

“Bank of Canada is raising rates to fight inflation; and higher interest rates are leading to higher mortgage interest payments, which is leading to inflation. It’s simply crazy.”

“Canada is the only country in the universe that uses mortgage interest payments as part of the Consumer Price Index,” he added. “Take shelter inflation out of the calculation and we’re at 1.5%.

“This is madness … but I can tell you that the BoC is now starting to realize this.”

An Inflationary Buffet

Calculating inflation used to be a simpler exercise, Tal said, focusing on two measures: total CPI inflation and core CPI inflation, or inflation minus energy and food costs.

Four additional sub-indicators have been added: co-CPI, CPI-X, CPI Trim and CPI Median. These indicators are assessed and compared over five periods: year over year, month over month, 3 months over 3 months, and 6 months over 6 months.

“So whenever we get inflation numbers we have 30 of them to look at,” said Tal. “This is an inflationary buffet.”

“It means if you wake up on the hawkish side of the bed you can find numbers high enough to justify raising rates, and if you’re less hawkish you can find numbers that are closer to the 2% target.”  

Canada’s Growth Prospects

Ramscar asked Tal how he viewed Canada’s economic growth prospects for the coming year.

“I’m sure many of you are disappointed because everybody promised you a recession and you didn’t get one,” Tal quipped.

But Canada is actually in what he called a per capita recession. “Per capita GDP is down by 3%. Per capita consumption is down by 2.5%.

“So the only reason we have a situation where the economy is still above 0% is because we let 1.2 million people into this country in a very short period of time. That’s not the way to grow the economy.”

This compares to the U.S., which is seeing GDP growth of 3% to 4%. “It’s (like) an emerging market,” Tal said. “It’s like a tiger.”

Meanwhile the global economy is slowing. Ramscar noted that powerhouses like Germany, Japan and the UK are in a recession.

“That’s not a big surprise when you have interest rates rising 500 basis points over the course of breakfast,” Tal said. “The surprise is how modest the recessions have been.” 

Declining Productivity and Profits

Canada’s greatest challenge is declining productivity, with an annual influx of 550,000 to 600,000 newcomers providing an “endless supply of low-wage employees,” said Tal.

Canadian businesses are also seeing declining profitability, as inflationary forces such as de-globalization, just-in-case inventories and a tight labour market put downward pressure on margins.

“Over the past 20 to 30 years profit used to be easy to achieve in Canada and the U.S.,” Tal said. “Now it’s difficult.”

Labour and profitability challenges can be addressed with an infusion of capital investment, he told Ramscar.

“And that’s’ where AI enters the story. Over the next 10 years we’ll see a wave of investment in tech because there is no choice, and productivity will increase like we saw during the dot-com revolution.”

And for those worried about AI taking jobs, Tal offered this: “AI isn’t going to take your job. The person who uses AI correctly will take your job.”

No Trades, No Houses

Another way to boost Canada’s productivity and address the housing crisis would be for government to tweak the immigrant points system to attract more tradespeople.

“Having no labour impacts real estate, and it’s going to get worse with trades workers retiring,” Tal said. “There will be nothing left in the pipeline.”

Construction workers and trades represent 2% of newcomers to Canada; it used to be 4%.

“We need to change the system for construction workers and nurses. It’s not about the number, it’s about having a better match with skillsets and what’s required.”

Foreign Student Scrutiny

When it comes to foreign students, which many blame for insatiable rental housing demand, Tal said the approach should be simple: Don’t bring them in if we can’t house them.

The problem here is not legitimate universities. “It’s those Mickey Mouse colleges. They don’t exist. It’s an office in a strip mall and (students) pay $40,000, and 20% of those students aren’t real students. It’s not a real education.

“This is a joke. We have to wake up. Because they are competing in the regular (housing) market, and they’re in food banks.

“I was pushing for an international student quota and there is one now,” Tal added. “So it’s starting to move in the right direction.”

No-Buyer’s Market

The Canadian housing market is “a buyer’s market with no buyers” at the moment, Tal said. But pent up demand and lower interest rates will get the market moving again in 2024.

Tal said the low-rise residential sector will do better in the recovery, as there is still excess condo inventory to clear. “I’m not optimistic about condos – 60% of condo investors are in negative cash flow right now.”

The current situation is more of a planning crisis than a housing crisis, Tal noted.

“Ten years ago CMHC estimated Canada’s population would be 38.7 million by 2023. The real number is 1.4 million higher. How can you plan for something that is not in the plan or forecast?

Benjamin Tal and Jon Ramscar speaking at the 2024 CBRE Canada Market Outlook

Employees vs Employers

What’s happening in the labour market will determine where inflation and the office market are headed, Tal told Ramscar.

“The bargaining power of employers is shifting and the labour market is normalizing, and the rate at which people are shifting jobs is back to normal versus during COVID,” Tal said.

“A year ago we had 1 million vacancies (mostly low-paying jobs) and now the job vacancy rate is dropping, so it’s consistent with what it was in 2019.”

“The bargaining power of labour is deteriorating,” said Tal, and four days at the office is becoming the new norm. “It’s a positive step toward having a semi-normal office market.”


Last year was a tough one for real estate investors. “Hard knocks certainly defined 2023,” Ramscar had said in his opening remarks at the Market Outlook Breakfast.

But Tal concluded their discussion on an upbeat note. “I do believe the worst is over,” he said. “The labour market is normalizing, and rate cuts are coming, which will help the markets. So I’m optimistic about the second half of 2024 and into 2025.”

If 2024 doesn’t mark the start of a real estate recovery, Ramscar said, it sets the stage for one.  

“Don’t give into the naysayers. Canada and Toronto have incredible potential. I am confident we can leverage our collective experience, creativity and momentum to win the future we all want here in Canada.

“The future is ours to make and it is about much more than real estate.”

2024 Real estate market outlook download

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