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The Global Economy and the Toronto High Rise Market with Benjamin Tal of CIBC World Markets

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Benjamin Tal is the Deputy Chief Economist with CIBC World Markets. On this episode we discuss the global economy including what’s happening in China and Europe, his positive outlook on the USA, Ben’s recent “Canada Jobs Report”, and listen to hear what Ben thinks about the recent trend of institutional investors getting into the Toronto High Rise Market.

Benjamin Tal Interview Highlights

1:00 Who is Benjamin Tal?
2:00 What We Talk About During the Interview
3:30 The State of the Global Economy
6:17 Will the US Economy Save Us All?
7:16 Quality of Jobs Report in Canada
9:10 The Widening Income Gap
10:38 Entrepreneurialism on the Rise?
11:44 Key Numbers in the Housing Market
15:36 Is the Future Bright for the High-Rise Market?
17:17 Concern of Excess Supply

Benjamin Tal Interview Transcript

Andrew la Fleur: Now it may surprise you, but I am not an economist. That’s right, my confession, Andrew la Fleur here on the podcast for everyone to hear. I am not an economist. However, I am a real estate investor, and if you’re listening to this show, you’re probably a real estate investor, too. It’s important as real estate investors, even though we are not economists, most of us … We do need to understand how the economy works and we need to understand what’s happening in the economy, both here in Canada, and locally, here in Toronto, as well as the global economy, and how these factors and issues and events that are happening will eventually affect us here in the local real estate market that we’re investing in.

Now, with that in mind, even though I’m not an economist, as I mentioned, I’m very excited to be able to be interviewing today on the show, one of the best economists in Canada, and that is Benjamin Tal. Benjamin Tal is the deputy chief economist at CIBC World Markets. He was recently described as one of Canada’s leading experts on the real estate market by the IMF, International Monetary Fund.

Mr. Tal is a regular commentator on financial and economical trends in the Canadian and American print and electronic media, so you’ve probably seen or heard Benjamin Tal speak before on the news or on BNN or CNBC, or whatever it might be, speaking about the Canadian economy.

I’ve heard him speak personally, a number of times about real estate market in particular. You’ll find him to be a very, very interesting speaker and thinker on the subject of Canadian real estate and the economy as a whole. So, very excited to be talking to Benjamin today.

On today’s interview we talked about the USA economy, what’s happening south of the border. We talked about the Canadian Jobs Report, which is a report that he was the author of, and recently put out about what’s happening in the Canadian job market. And we talked about what’s happening, of course, here in the Toronto high rise and condominium market.

You may be surprised at his take on the recent trend of high rises. Instead of becoming condos, they’re becoming rental buildings, purpose built rentals and big institutional investors are looking at getting into the rental game once again, particularly in the downtown core of Toronto. You may be very surprised at his take on that, so listen for that.

For all the show notes on today’s episode and links to everything that we talked about, you can go to, and if you type that in you’ll pull up the show notes for this episode.

Without any further delay, let’s get to my interview with Benjamin Tal, deputy chief economist of CIBC World Markets. Here we go.

Andrew la Fleur: It’s my pleasure to welcome to the show, Benjamin Tal. Benjamin is the deputy chief economist of CIBC World Markets. Benjamin, welcome to the show.

Andrew la Fleur: Benjamin, why don’t we start with the global economy? We’ll start there and we’ll sort of work our way down to the Toronto condo market. What are you sort of seeing in the … How would you describe the global economy right now in terms of USA, China, Europe? Yes, I think hat are you focused on?

Benjamin Tal: Yes, I think that if you look at the overall situation, we have really a tale of two economies. We have the US and we have the rest. The rest is still slowing. You have China struggling, the Eurozone is not doing great. The only thing that is really moving is the US economy, that is figuratively strong.

Now, going to some of the pockets of uncertainty, especially the Eurozone and China, we know that those are not normally functioning economies. But, at the same time, we do know that the authorities there are doing whatever they can to stimulate the economy.

You look at the quantitative easing in the Eurozone, deposit traits are negative, the Euro itself is going down and down. That’s a huge positive. The energy prices, you will see, actually, the Euro economy probably improving in the second half of the year, and one of the reasons why the stock market in the Zone is actually improving is because of the fact that people are expecting the Eurozone to start showing some signs of life, because of the factors that are stimulating it.

In China, again, China is slowing down. There is no question about it, but it’s a very different story in China because they are the government that controls the economy. They can tell banks to start lending or stop lending, and that’s exactly what they are doing now. They’re trying to stimulate the economy and I think they will be able to do so. Namely, reach the promised land of a soft landing let at seven percent of GDP growth, which is good enough for them at this point. Again, slowing, but doing something about it, that’s the rest of the world.

The US is clearly moving in the right direction. They have been creating jobs at about 250K a month. That’s significant. This eventually will be translated into increased consumer spending. Yes, the global economy is slowing, but in many ways, the US economy is an island. Given the fact that almost ninety percent of its economy is basically the domestic economy, so they are not as exposed to the global economy as, for example, Canada. So, the US will probably be able to maintain two and a half to three percent GDP growth, relying on the domestic economy there, in general, and the consumer.

Andrew la Fleur: Do you the, if the United States economy continues to move in this direction … Do you think ultimately it will, in a sense, save us all?

Benjamin Tal: Well, that’s the hope, but I don’t know what it means to save us all. I think that clearly, that’s not enough. You need help. And the help is coming from fiscal policy, monetary policy, from the European Central Bank and from the Chinese authorities.

Clearly, the US economy improving will help everybody, including Canada, but it’s not sufficient. You need a little bit of stimulus, especially in places like the Eurozone and China.

The most important vehicle is actually the currency. We’re in the midst of a currency war. The US dollar is going up, all the rest are going down and that, basically, is something that is going to restructure overall economic growth over the next two to three years. Basically, cheaper currencies in the Eurozone. Even China probably will let it’s currency going down. And we all know what’s happening to the Canadian currency.

Andrew la Fleur: Right. Speaking of Canada, let’s get into the Canadian economy. Specifically, maybe we could talk about your quality of jobs report that you came out with recently. What were some of the highlights from that report and the findings there?

Benjamin Tal: Yes, I think that the overall situation in Canada is very different than in the US in many ways. First of all, we are much more sensitive to the decline in other places, but again, this sensitivity is a functional … Depends where you live, you know?

Clearly, most of the impact is in Delta, to extent of [cal-choo-an 00:07:54] but places like Ontario, British Columbia, Quebec, actually would benefit from that. Eighty-five percent of Canadians are actually going to benefit from low oil prices vis-à-vis the decline in gasoline prices. It’s basically almost a ten percent tax cut on everybody. So this is not insignificant and we are going to see it, I think, in the next few months.

The job market, as you mentioned, is slowing down. We are creating about ten thousand new jobs as opposed to twenty, twenty-five in previous years. So, clearly it’s slowing, but also the quality of employment is slowing a little bit. Basically the nature of employment is different. We’re creating more part-time modes of employment and even those that are fully employed, they’re wages are not rising quickly.

We have a situation which the labor market is not as strong as the headline and [nah-bills 00:08:49] suggest, which is okay, but it means that interest rates in Canada will not be rising anytime soon. As you know, the Bank of Canada actually cut interest rates, which was a big surprise. There are some speculations that they will cut again. I’m not sure about that, but clearly interest rates in Canada are not rising anytime soon.

Andrew la Fleur: Let’s talk about the income gap, one of the things in your report. Income gap seems to be widening between the higher end jobs and the lower end jobs. Are we in danger of sort of moving towards almost like a caste system in North America?

Benjamin Tal: Well, what we have seen, we’re seeing situation which wages are rising much faster for high paying jobs and my answer is that their bargaining power is much stronger. We have a situation in which the bargaining pile of low to medium wage income has been deteriorating and therefore their wages are not rising as fast as the high paying jobs where there is a little bit of shortage in terms of the people that we need. We simply cannot find them and therefore they can see their wages rising.

That of course is leading to some widening in the income gap in Canada, which I don’t think is a good thing. There is a mismatch in the labor market, I believe, you have jobs without people and people without jobs. And that’s something that I think we have to tackle.

It’s not the monetary policy. It’s much more than that. It’s really policies that have to do with education, with immigration and many other dimensions.

Again, the labor market and what’s happening there, is clearly impacting the income distribution in this country.

Andrew la Fleur: What’s happening with self employment? Are people turning to self employment and those entrepreneurialism on the rise because the labor market is bad. Is it a good thing or a bad thing? Where do you see that?

Benjamin Tal: That’s a good question. We see many young Canadians starting their own business and many of them probably were forced into it. Basically, they have no choice.

What’s interesting is that we haven’t seen any difference in the likelihood of success, regardless, if you were forced into self employment or if you chose to be self employed. Those decisions really would not impact your likelihood of success, historically speaking, and therefore I’m not concerned about the fact that too many are being forced into self employment, because eventually they will do well.

I do believe that self employment will be a major, major factor impacting the Canada labor market and the Canadian economy in general over the next decade because I think it’s going to be the fastest growing segment of the labor market.

Andrew la Fleur: Interesting. What sort of factors do you track, or do you look at, with respect to the housing market when you start to boil it down to the housing market in Canada? What are the key numbers that you’re tracking, that you’re looking at? Maybe, that you’re concerned about right now with housing or that you’re not concerned? Maybe about some things that other people seem to be concerned about.

Benjamin Tal: Yes, that question, when it comes to the housing market it’s a very complicated market, you know. I was in a meeting where some three people asked me to make a short comment regarding the housing market in Canada and I said that the only short comment that I can make, is that I cannot make a short comment or a brief comment on housing because it’s a very very complex issue.

Andrew la Fleur: Yeah.

Benjamin Tal: It’s multi-dimensional. As you know, there is no such thing as a housing market in Canada. Toronto is very different than Calgary and Calgary is very different than Vancouver. Therefore, talking about the housing market in general terms is almost meaningless in my opinion. You have to go deeper. You have to go Toronto versus Vancouver versus Montreal and then between each city, you have to go low rise versus high rise and between the high rise, you have to look at trends versus no trends. It’s a very complex market and it’s not such something that will change quickly.

I do believe that we have major issues in this country regarding good information. We don’t have enough good information on real estate and that’s something that I believe we must, must fix. I know that many good people are working on it now, trying to improve the quality of information that we receive when we visit the housing market, because in many ways we are flying blind.

Having said all that, when you really want to understand the market, you must really look at micro-numbers but you also have to stick to people in the field. You have to stick to developers. You have to get a sense of their motivation. You have to look at presenters. You have to look at investors and why are they investing and what culprit that they’re using. So you really have to go deep in order to get the better sense of what’s happening.

To me the picture that is emerging, especially in places like Toronto and Vancouver, which is basically any of the housing market today, because if you take Vancouver and Toronto out of the equation you have a housing is already slowing in a soft landing fashion.

Basically Toronto and Vancouver are still relatively strong and the question is, “Why?” And the answer is that we still are very seeing this mismatch between supplier flow rise and what people need and that’s why the high rise in those cities is still extremely strong.

But we kill the high rise, I believe that we’re starting to see some extra supply in terms of investment and the rental market is definitely a major issue. I believe when interest rates stopped rising we’re going to see some pressure there namely there will be extra supply in the resale market, as many of those investors will rethink their investment philosophy given a change in the cut rate.

So, I do believe that those markets will be tested, but what’s really changing now is that the condo market, until now, was the rental market and vice versa and we know that this is changing. The condo builders are starting to see sales slowing down and basically we’re starting to see more and more purpose build activity with institutional investors being a big player here. To me that’s the future of real estate in Toronto and Vancouver over the next five to ten years. You will see much more purpose build, which is almost the opposite of what we have seen over the past decade and a half.

Andrew la Fleur: Right. Now those major institutional investors who are putting their money into these purpose-built rentals, is that not the sign that the future is very bright for the high rise market?
Benjamin Tal: That’s definitely going towards the sense of stability. They’re not a nervous investor of watching cut rate every day. They’re basically people that are there for the long term.

Andrew la Fleur: Yeah.

Benjamin Tal: And they know the market. They have the focus to observe some changes. They will not get into it for just a year or two. They are there to stay. I thought we agreed that this will introduce a sense of stability and I think it’s a very, very, very encouraging sign and I will welcome this sign because I believe that when you have a bunch of individual investors they can change their mind tomorrow based on the newspaper headlines, while institutional investors will not do that. To me, that’s a very, very positive development.

You have to remember that this is coming. There is some logic to this madness. The logic is affordability. We are in an affordability crisis here. Young people cannot afford houses, we all know that. The condo market really introduced a sense of affordability into it, and that’s why I believe that the condo market is a stabilizing force as opposed to a destabilizing force in this context. But I think that another dimension of the market that is unaffordable is increased rental activity and now I’m much happier to see a sufficient investors entering this place as opposed to individuals.

Andrew la Fleur: Right. One final question. You mentioned the lack of information in the housing market being an issue. As you’ve done your own research and findings into the condo market over the past few years, has your position on any particular aspect of the condominium market changed? Is there something that you used to be concerned about that you’re no longer concerned about because you’ve done your own research? Or, vice versa, something you were not concerned about but now you are because you’ve got your own research on it?

Benjamin Tal: Yes, first of all, I’m not as concerned about extra supply of new units. I think that we are not going crazy. I think that if you look at all the cranes and drones in Vancouver and you add them up and you basically try to look at it against demand, this is not in the sky at all.

But what I do believe is that the rental market, especially investors, they are extremely sensitive to the cut rate and even a modest increase in interest rates can change their appetite and you can see some excess supply in the resale market. To me, that’s the most significant challenge facing the condo market over the next five years.

Andrew la Fleur: Great. Benjamin, thank you very much for your time today. I really appreciate it.

Benjamin Tal: Sorry it took so long. It’s a crazy, crazy [inaudible 00:18:46]

Andrew la Fleur: No problem. It’s great to have you on the show, and hopefully we can have you on again in the future.

Benjamin Tal: Absolutely. Good luck. Thank you.

Andrew la Fleur: Great. Thank you, Benjamin.

Okay, there you have it. That was my interview with Benjamin Tal. I hope you enjoyed that interview.

I thought it was great to hear what he had to say. I think overall you can characterize his commentary, his feelings on the local and global economy as being quite good. Certainly nothing, no doom and gloom sort of story-lines or anything like that to be concerned about right now, which is always a good thing. At the same time, he’s not anticipating any major boom times on the doorstep or anything like that.

Again, it’s a great time to be a real estate investor. It’s a great time to be buying real estate for the long term. Interest rates are at historic lows. Rental rates will only continue to rise over time. The population of the GTA is only going up and up and up, and all these people are going to need a place to live. So, if you’re buying now and holding for the long term, you’re taking advantage of all those factors.

I thought it was especially interesting, of course, what he was saying about the fact that he sees the institutional investors coming in and building purpose-built rentals as a major stabilizing force. This is a very positive thing in his perspective, as to the overall condo market, as to the overall high rise residential market in the GTA.

Again, it’s nothing to be afraid of. It’s nothing to fear. There’s nothing bad to take from this trend. In fact, if you are buying condominiums, what’s going to happen in the next few years, I believe, is that the supply is going to start to go down. There’ll be fewer and fewer condos being built, especially in the downtown core, as fewer and fewer sites are available to develop.

Again, that goes to supply and demand issue. The fewer condos being built, and you’re one of the industrious who are purchasing the ones that are being built, then you’re operating in a world where supply is decreasing, then rental prices will likely go up and resale prices will likely go up as well.

There you have it. That’s today’s episode. I hope you enjoyed that. Hopefully we can get more people of Ben’s caliber on the show, other economists and things to talk about these sort of issues.

Always appreciate your feedback. Feel free to send me an email, send me a tweet, hit me up on text, whatever it may be. is my email. Twitter, you can follow me @andrewlafleur. If you want to send me a text or call me, you can reach me at (416) 371-2333. Thank you very much for listening and have a great week.

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