Benjamin Tal on Canada’s 2025 economy: Inflation, housing challenges and the impact of U.S. politics
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“Inflation is like a brown spot on a banana—by the time you see it, it’s way too late,” says Benjamin Tal, Managing Director and Deputy Chief Economist at CIBC. He’s responsible for analyzing macroeconomic trends and assessing their impact on fixed income, equity, foreign exchange and commodities markets.
This fall, Ted Rogers School of Management (TRSM) organized a Real Estate Management event to discuss inflation and what to expect for growth and interest rates. The event was hosted by Dr. Murtaza Haider, the Associate Dean of Graduate Studies and professor of Data Science and Real Estate Management at Toronto Metropolitan University (TMU). A published columnist with Post Media, Haider writes in a weekly column on real estate markets which appears nationally in The Financial Post and various local newspapers.
Haider welcomes Tal as a VIP guest speaker at the event where he brings a wealth of knowledge and rich experiences to the students, friends and alumni of TRSM for thought-provoking discussion. With over 20 years of experience in advising clients, industry leaders, corporate boards, trade associations and governments on economic and financial issues, Tal spotlights what lies ahead for the Canadian economy in the upcoming year of 2025.
Inflation tells us about the past, not the future. Tal describes inflation as a lagging indicator, explaining that while central banks are known as inflation fighters, rising rent by nine percent annually and mortgage interest payments by twenty percent annually are compounding challenges. “We all feel it,” Tal says. He likens the current situation to putting a humidifier and a dehumidifier in the same room and letting them go at each other, emphasizing that while raising interest rates combats inflation, it also drives up mortgage costs.
Tal also notes that Canada is experiencing a per capita recession, which impacts housing and food prices. “You basically have to mortgage your house to buy a cucumber,” he jokes. Yet he stresses that this is not just a housing crisis but a crisis of planning. He recommends purpose-built rental apartment buildings as part of the solution, noting that many existing properties in the Greater Toronto Area were built more than 40 years ago and are not designed for their current use. (PDF file) Purpose-built rentals (external link) , constructed specifically to house tenants rather than sell condo units, could stabilize housing demand and reduce inflationary pressures. “We need to start building differently,” he adds.
An article (external link) by Haider and Stephen Moranis suggests that new homes should be built to accommodate multiple families, offering a solution to Canada’s need for six million new dwellings by 2030 to achieve housing affordability. They propose constructing new homes built with an accessory dwelling unit (ADU) to house both an owner and a renter, allowing more households to fit into fewer constructions.“With ADUs, new homeowners, especially first-time homebuyers, become homeowners and landlords from day one. The guaranteed rental income is the missing link for young and low-income households,” write Haider and Moranis. Haider also compares housing trends (external link) in the U.S. and Canada, noting that both face challenges such as high construction costs, regulatory constraints, and land availability, though their housing markets reveal unique patterns. In the U.S., demand for single-family homes dominates, and experts (external link) suggest that Donald Trump’s proposed policies, such as tariffs on building materials, could exacerbate housing affordability issues. These policies could raise construction costs in both countries, further driving higher housing prices in major cities such as Toronto and Vancouver.
With this event taking place prior to the 2024 election, Tal predicts that the budget deficit will rise even more so with the election of Trump. “I think that if Trump wins, I see stocks in the banks and financial institutions actually rising, but the risk level also will derive,” says Tal. Ultimately, as the budget deficit continues to rise, this could lead to inflationary pressures in the U.S and has the potential to spill over into global markets, such as Canada, affecting borrowing costs for mortgages and loans and increasing affordability challenges. There’s no doubt that there's housing inflation in Canada. Yet, Tal suggests that interest rates will continue to go down and with the proper planning of apartment buildings, there is potential for growth.
Understanding the Canadian economy is crucial for navigating challenges such as inflation in today’s business landscape. Educational programs, such as the Ted Rogers MBA at TMU, provide a space to explore these complexities and envision innovative solutions. As Tal points out, driving change and anticipating the future are essential. After all, “what was normal in the past is not normal in the context of today’s economy,” he concludes.
Explore more insights by watching the video of Benjamin Tal's talk at the Real Estate Management event below.