James H Stewart
Today’s episode is a special one because we’re stepping inside one of Australia’s oldest and most enduring family businesses. My guest today is Angus Raine, the executive chairman of Raine and Horne, a business founded in 1883 that has survived wars, recessions, property booms, busts, and now finds itself navigating one of the most complex housing environments Australia has ever seen. This is a fourth-generation family business operating at a serious scale with hundreds of offices across Australia and a growing international footprint. Now, while the brand is built on legacy, relationships and trust, the market it operates in today is being reshaped in real time by a digital revolution, a data revolution and economic conditions, which threaten to keep at least one generation of Australians out of the housing market. So we’ve got lots to talk about, including the housing affordability crisis, major planning reforms pushing higher-density development, the rise of institutional capital and the build-to-rent model and a property market that behaves as a series of highly fragmented local markets. We’ll also talk about succession planning for the family businesses and market cycles.
Before we get started today, I should mention that this episode is part of a special series of six interviews I’m doing in collaboration with Family Business Association. Family businesses are the backbone of the Australian and New Zealand economy. They make up 70% of all Australian businesses and 75% of Kiwi businesses and they also carry some of the most fascinating stories in business. Successful family businesses are often resilient organisations facing multigenerational leadership, succession and governance challenges, all the while dealing with big decisions, balancing legacy and innovation and protecting the family interest; it’s a lot to manage. Family Business Association represents and supports thousands of these businesses of all sizes across Australia and New Zealand through events, courses, and education programs designed to help family businesses succeed in the long run. So for this series, we’re trying to get leaders from some of the region’s most respected family businesses to explore the stories behind the headlines. The decisions, the mistakes, the lessons, the successes and what it takes to build something that lasts, and Raine and Horne is a great case in point, so whether you’re an investor, a business leader or part of the family enterprise yourself, there’s a lot in this episode. So, welcome to the show, Angus Raine.
Angus Raine
Thanks, James, pleasure to be here.
James H Stewart
And I’m delighted to have you on. It’s going to be a terrific conversation. Now, before we get into the property stuff, which I think is really topical at the moment, I would love you to take us through a quick whistle-stop tour of a business that started in 1883. So it’s 140 years old, four generations. It’s an incredible story. Can you just give us the quick story about how this business has grown over such a long period of time?
Angus Raine
Oh boy, as you mentioned, I’m the fourth generation, so that’s 143 years old. I like to say 143 years young with some of the things we’ll probably talk about, some of the innovations we’ve been doing the last five to ten years. So it started in Sydney, it was Tom Raine and Joseph Horne. A lot of people asked me what has happened to the Hornes? He hung around for about 20 years and left in 1900 and he never had children and back in the day, he was pretty upmarket so he went back to the UK. That solved one problem with succession planning, I think. We’re going to touch on that with family businesses. So he’s no longer and funnily enough, his great nephew from Scotland visited our office a few years ago, which is a bit of fun. But I did think, here we go. Have we got a problem? Is someone going to serve me with a writ or something? It was all fine. But I think the reason why we’ve survived and growing and growing is that my father was probably the second or third person in Australia to adopt franchising as a business model. So the first was, I think, a mattress firm. Second was one of our competitors. And Dad was the third. So that’s sort of what we’re talking about, always innovating. So he certainly grabbed the bull by the horns, excuse the pun, and the rest is history. So we’re continually growing and growing, which I think we’re going to touch on anyway.
James H Stewart
Yeah, look, it’s just such an amazing story. I think about, you know, I’ve operated in my career at the different end of business and I have dealt with a lot of family businesses over the journey. But to have a business that’s 143 years old and still thriving is, you know, quite a legacy. I do want to ask you, in your journey in the business, there was a period of time where you stepped out of the business, you weren’t involved and you went effectively to work for competitors until you came back. Can you talk to us about that and what drove that decision?
Angus Raine
Well, I didn’t step out; I was never in. Never in the business. So my father used to claim, he died only three years ago at 91. So he had a great innings. My father used to claim that it was his idea for me to work elsewhere, but I’d say it was my idea, but we actually agreed to just say it was both our ideas. So I didn’t join Raine and Horne until I was 36 and I worked with the competition. I think if you’re running a sales organisation, even in today’s age, you’ve got to have done it, I think. I mean, that sounds quite simple. You’ve got to have done it and probably done it reasonably well, which I did. I worked for three or four other international firms and climbed the ladder. They were pretty stratified back then. A lot of the English was a lot of very English sort of based firms, mostly have now been taken over by listed American firms. I won’t mention them, James, because they’re the competition. So I sort of climbed the ladder until I was associate director. And then, I think importantly, I joined my father at board level, so I didn’t join him as a junior, junior, and I think that’s very important. You join with credibility, you join with education. I’m very big on being educated and keeping on educating yourself, particularly if your name’s on the door. So, to sort of get around suffering from imposter syndrome, you get around that with a lot of education and work elsewhere. That’s just sort of a, I mean, it’s a big term, but I’m very passionate about avoiding imposter syndrome, and it’s even harder if your name’s on the door.
James H Stewart
Yeah, I love that. So tell me, when you came to the business at board level, what lessons did you think you learned from the businesses that you worked at previously that you were able to bring to the business, or was it just a different perspective?
Angus Raine
I think the business I was in was very ego-centric; it has changed now, very male-dominated, ego-centric, ego over profit. I was working in the recession we had in the early 90s. So, for example, if one particular sales team was 12, if the competition had 12, well, we must have 12, which is just ridiculous; it doesn’t make sense, particularly when you’re trying to survive a storm like a recession. So just cut back your costs. Some of the firms I worked with have massive debt, so I remembered that. Certainly, you’ve got to manage your debt and manage your ego. I think that’s even more important.
James H Stewart
Yeah, I know, very, very important. In fact, actually, that’s not a bad thing. I do have another question I want to ask you, because I wanted to talk about succession planning. So, you know, with four generations of family ownership and I talk about it and I want to ask you this question in this context. In my 40 years of professional practice, working in restructuring and turnaround, I have mostly seen the train wrecks of family businesses. And I don’t say that because family businesses are by definition train wrecks, they’re not. But I did see some incredible and eye-wateringly tragic stories and examples of wealth and value destruction because of either family disputes or capability gaps at a generational level. And I also saw examples of ego and hubris completely get in the way of the business fundamentals and the business management because of the legacy that went before them. Now, that is not the story at Raine and Horne. And you’ve kind of touched on it a little bit, but I’d love to get your perspective on succession planning for family business, how it was managed in your business, how did it work in practice? Were there any challenges that came out? I’d love to get your perspective on that.
Angus Raine
Thanks, James. As I take a sigh, I’ve got three sisters, I’ve got five children and one wife. So my father, back in 1996, as I look up here, we went to one of the big four accounting firms. And the first thing my father said, there were three partners in the room, in the boardroom. And my father said, “Son, speak quickly, this is costing us a fortune.” Because my father was a bit cheeky. I’ll never forget that. But the second thing which is even more valuable was that he said to them, “I still want to have Easter and Christmas together with the family.” The older partner said, “Max, that is music to my ears, because a lot of the more times, often than not, these don’t end well.” So he started that plan, sort of 20 plus years ago, a succession plan. And then that’s eventuated with his death three years ago, and reading the will with a lawyer and everyone agreed, and we all went out for dinner with my mother, and we didn’t ask the lawyer obviously, but we’ve all had enough for dinner. So it’s actually more often than not. It doesn’t end well. Particularly, I’m from the eastern side of Sydney, a lot of these things, as you said, a train wreck and it’s terrible. I never speak to their siblings again, etc., etc. So in our case, to my father’s credit, sort of got on to it very quickly and there’s no excuse not to now because there’s many consultants in that space and to give our Family Business Association a plug. I was on the New South Wales committee for about 15 years and there’s Forum Groups which I’ve been a Forum Group member for 25 years. They’re professionally facilitated, they’re a great state, they have great national conferences. So you’re not alone, that’s all I’m saying. Because family businesses tend to work a lot harder, but unfortunately, you’re working harder but you’ve got your eyes looking down. You don’t have enough time to see where’s the market going, AI, or where’s your industry going in any, either micro or macro. You’ve got other people there, there’s no excuses anymore. I’m a great fan of consultants, a great fan.
James H Stewart
One of the things that I have seen in my journey working with family businesses is that you either get a form of groupthink because of the family legacy. I’m trying to say this in an objective way. I don’t mean it in a negative way, but it can happen over time. Or you get a dislocation or a disconnection between family members. Was that a factor that impacted your business? How do you think that family businesses can mitigate against that?
Angus Raine
Well, since the 1950s we’ve had non-family executives, and this is all before C-suite was even a term. Non-family back to this list of the 50s and 60s all the way through. We’ve had non-family CEOs, we’ve had non-executive directors, we’ve had a board, non-executive chairman too I should mention and they sort of, they’re a good buffer between my father and I. And I don’t want to overplay that. My father was brought up in an era that was you never speak about money, which is fine, had five children under seven. I needed to think about money because they’re expensive. So it was a really good buffer. Could sit down with a non-executive chairman and have a conversation with him and then he’d go to my father. It’s just, it is a lot more complex. I always say that business is complex in this day and age and then you bring the family in and that’s another level of complexity. So to get around that, you have a proper board, non-executive people and also non-executives that have had more life experience than you. I’m being politically correct, which is not a familiar territory for me. They’re older than you, they remember the 70s. I mean, the energy crisis we had in the 70s, they remember more booms and busts than you. They’re cheap, they’re not a lot of money. And then underpin that with consultants. We used a great firm called Bendelta, who I still speak to, and they’ll tell you what you probably don’t want to hear, and they’ll pull your nose. And we all need that because in family businesses everyone’s maybe too afraid to say well you’ve done that wrong, you’ve done that correctly, and I’m talking 180 reviews, 360 reviews. And then we did that and massive, massive change in here in a good way and then they said, well Angus, you should do an executive development program with us. And they were the ones that said, well, you’ve got to go to Harvard Business School. Dare I say it, probably would never have thought of that if it wasn’t for them. And they pushed me to do it. You’ve got to do it. And I did it. It was now 18 years ago. And I go back for reunions and things. But that was probably the hardest thing academically I’ve ever done. It was, yeah.
James H Stewart
Yeah, that’s interesting you mentioned Harvard. I did a course at INSEAD when I was 52. I think I did that course because I was stepping into leadership roles in the business I was involved in and it massively changed the game for me. And in fact, in a way that I was a bit humbled and almost embarrassed to say how much of a difference it made to the way I thought about leadership and businesses. And so I think that that comment around Harvard University and having the benefit of that education as a dial shifter is a great thing. It’s a great thing.
Angus Raine
Yeah, and the global network and funnily enough, we had these sort of non-elective sessions just for specific family businesses. Of course, the course I did was for private businesses, but not all of them are family based. So I heard all the same issues in Spanish, in Italian, in Japanese. I’m thinking this is unbelievable. Everyone has the same problems. They just say it differently. It was amazing for me. It was a light bulb moment. So as I said, you’re not alone in the journey. That’s for sure.
James H Stewart
Fantastic. All right, let’s jump into some property stuff. That’s a great story, by the way. I really enjoy that. Let’s talk about our property market in Australia, residential and commercial primarily. I want to get into some rabbit holes with you, but before we do that, can you just kind of give me your perspective of where the market is at the moment in terms of the major trends, the major shifts that you’re seeing, and are any of these being replicated overseas?
Angus Raine
So firstly, my PR people should be shot because of the intro you did, James, you mentioned bust. That’s more associated with the stock market. We don’t have busts and probably we have a softening market, James. Thank you very much. And that is a good segue. Things at the moment, definitely a lot softer in consumer land, without mentioning the Middle Eastern conflict but that has just really, really put the brakes on the market notwithstanding the couple of interest rate rises we’ve had.
James H Stewart
Yeah, yeah, it’s definitely, it’s definitely shifting. You can feel it’s shifting. And then I, and it’s interesting when we say bust, that to be fair, that was my word, but I say it in the context of I was around in the early 1990s. So we had a share market bust, then we had a property boom, then we had a property bust and maybe the word bust is too harsh. But there’s no question that we saw back then huge shifts in where economic assets were going between share market and property market and then it all sort of turned to custard, as you said earlier about the recession we had to have. It was quite a journey. Let’s talk about housing affordability. This is not just an Australian issue, but it’s a generational issue and I have two kids, one of my daughters has three kids, I’ve got three grandchildren and I’ve always been of the view with my wife that you need to, you don’t value what you don’t earn. So we support our kids of course, but we also want them to make their own way in life and get to where they’re going to get to economically or socially off their own steam. And in reality, my kids have all got good jobs, but none of them can actually afford to buy a house in the way that I was lucky with my wife to be able to buy one when we were 26, we could buy a house and comfortably buy a house whilst the mortgage was a bit of a stretch. At the time, it was digestible. But now we’re in a whole different situation where it feels like a generation of Australians just will never be able to buy a house. I’d love to get your take on the housing affordability crisis, what your perception around the drivers are, the impacts are and what we can actually do about it.
Angus Raine
So look, it is a crisis, there’s no doubt about it. I think we’re too focused, the governments both state and federal, too focused on affordability and they’re too focused on first home owners. And I think it’s always an issue, any grant, we’ve seen these grants come in before, I actually cheekily call it, it should be the first sellers grant, because what used to be 800,000 in Sydney, a unit, because of the first home owner grant, it artificially stimulates a market that’s very healthy anyway. And all of a sudden it goes from, say 800,000 and all of a sudden, they’re now valued at 1.2 million. Because every man, all the parents are pushing their kids, now you gotta buy, now you gotta buy. And also rent caps, some state governments, I think ACT in Victoria, that’s even worse, that kills the investor market. And particularly ACT, we’ve got evidence of interstate investors just ringing up our offices in the ACT saying sell and then of course because the first homeowner grant invariably first homeowners buy that which was an investment property and it gets taken out of the rental pool forever. And then gosh, what do they have? They have an even worse crisis because of their lack of stock. So it’s sort of, particularly some governments, I think some of them see the property owners as a cash cow in raising revenue and two, without being too dramatic, they see the property owners as the enemy and they’re not the enemy. And remembering most of these investors own one property. They’re not property moguls, they’re not fat cats and they’re not slumlords. So there’s a lot of disinformation about it. I think it is going to be generational. It’s going to be 20 or 30 years before we really fix this issue. But I think the government, state and federal should decentralise. Know, look at New South Wales, we’re lucky. And Victoria too, we have robust regional, and I’m not talking about the coast, because every Australian, and that’s the trouble, we’re so urbanised. I’m talking inland, Wagga, 70,000 people, Dubbo, Bathurst, Orange. And of course Victoria, Ballarat, Bendigo, Wodonga and over the border, Albury. These are robust places, employment is easy, there’s significant job opportunities but I think younger people tend not to move. I think we’re all a bit spoiled, James.
James H Stewart
Well, I think that’s right, although I have to say, I’ll call it out, my daughter moved to Ballarat with her family because it was a and they don’t have any relatives up there at all or friends up there when they first moved. They moved because it was more affordable. They moved from a lifestyle perspective and they moved because when you have, as you had, I think you said you had five kids, but she has three kids under five. It was like life is chaos. And to be able to live an affordable lifestyle in Melbourne was just too challenging for them. And now they love it. They absolutely love living in regional Victoria, you know, particularly when it’s not too far from Melbourne. So it makes it accessible. When we think about this housing affordability crisis, there’s a number of things that come into play. You’ve got supply demand drivers, you’ve got immigration, and I was reading an article about this this morning or yesterday from Canada, whereby the Canadians have changed their immigration rules and housing affordability is actually massively improved. And I don’t want this to come out the wrong way. I’m not an anti-immigration person at all, but there’s volume issues around it. That’s really what I’m saying. Then you’ve got construction costs and then you’ve got government policy, which you’ve kind of touched on, which is all sitting around things like land tax and stamp duties. How do you think those various drivers impact the affordability question in reality?
Angus Raine
I think there’s probably six or six to ten drivers. You’ve mentioned several. The big one is liquidity. There’s just no liquidity in the market, meaning there’s nothing for sale on the market. I’ve been lobbying the federal government to do a capital gains tax for years, put a honeymoon period on capital gains tax. So it’ll just flush out, say if someone owns two investment properties, they’ll say to the partner, why don’t we just sell one, get it back in the marketplace. Stamp duty, that’s obviously state level, give people stamp duty concessions, not means tested, but age. So anyone over say 70, because there’s a lot of the probably the better suburbs in any capital city. People have been in that house 20, 30, 40, even 50 years. I’ll say, you know, you probably have a moral obligation to unlock that property and let someone else bring their family up in that property. But people have their hands tied, because that’s a major asset. And the cost of moving is enormous. So you’ve got a couple living in an enormous house, so all they need is a lever. Last time that happened is when the Howard government brought in that super, the million dollar super, and that really flushed out a lot of the empty nesters, because they said, right, now’s the time. So we need another lever like that, just to bring more liquidity back in the market.
James H Stewart
Yeah, that’s good perspective. So when you then think about the supply side, know, in August 22, the Albanese government announced an ambition to build 1.2 million new homes over five years. And I think that largely most people in the market say, that’s just not physically possible. And it might be even more difficult now with what’s going on with fuel prices and construction costs. What’s your perspective on the ability to actually fix the supply side?
Angus Raine
So I think people that have been around longer than as long as you and I, James, that was just fallacy. That would never happen. That’s just a headline grab. But I think you’ve got to start where the planning starts. And I don’t want to beat up the government. You’ve got to start with a planning start. City of Sydney, they’ve to a certain solar. So, the units have to have solar for a certain percentage, sun, for a certain percentage of the day, for example. There’s all these impediments where, if it’s a crisis, I’m not saying throw the planning out the door, I’ll not say that, but I think we’ve just got to be more liberal in planning. So, footprints, I think we’re all spoiled in this country. I’m lucky enough to travel to London and New York a lot. My gosh, some of these units my kids stay in are so small. But in a crisis, you can’t be as fussy as you and I, James, and we when we were looking when we were first married. Unfortunately, we’ve got to build smaller footprints and more, more and more.
James H Stewart
And have the public transport infrastructure to back it up. Indeed, the Victorian government’s announced not long ago that planning and density reforms, which basically allow in certain suburbs in Victoria, or in Melbourne rather, you can build up to six storeys effectively without a right to object. Now it’s pretty draconian, but thinking about your idea of unlocking something, that has the potential to unlock some behaviours because particularly in suburbs which are often long held by owners and things like that. I’ll be interested to see how that actually plays out. And I’m far from a planning expert but I have had my stoushes with planning departments in the past and it kind of drives me a bit nuts. Do you think that’ll be one of the things that unlocks property for younger Australians?
Angus Raine
I think my idea is you can do that in, you can get that through in four weeks. Be it capital gains, and I think we’re going touch on that later, but more so the stamp duty. But the trouble is, in most states that’s probably 60% of the state’s income is from property stamp duty.
James H Stewart
Yeah, OK, well, actually, let’s just grab capital gains tax now, because I wanted to raise that earlier and it just slipped my mind. But when we think about capital gains tax and we think about Australia and New Zealand and New Zealand, the position is actually a little different in terms of the structural position for ownership of property over there. I think there is no capital gains tax in New Zealand if I’ve got that right. So you’ve got this incredibly hot market and in Australia you’ve got a reasonably hot market because of the deductions you can get. How do you think that lever needs to be adjusted or doesn’t need to be adjusted to help release the supply side of property in the market?
Angus Raine
So think they’re looking at it all back to front. It’ll probably have an adverse effect. And it’s discouraging people investing right now because it hasn’t gone through parliament yet. So there’s this uncertainty. There’s nothing worse than uncertainty in any market, be it the stock market or property market. Think it’s just putting people off and they should be encouraging people. We’re the backbone of the Australian economy is property investing and property wealth. Mean, I think it’s $13 trillion. ASX is about 2.5. So it’s an enormous amount of wealth. And that’s why we’re front and center and unfortunately, federal policy and state policy and headlines, headlines in the press.
James H Stewart
Yeah, no, incredible. So one of the things that also gets talked about a lot, which was foreign really, I think, in Australia, maybe 10 or 15 years ago, is the build-to-rent market. And again, this goes back to this generational divide and kids who are not going to be able to own their own home. So how do you think about the build-to-rent market and its momentum in Australia? What’s going on there?
Angus Raine
So build-to-rent is a very European initiative. They’re heavily taxed. I think it gets more press than it deserves. And I’m in favour of it, don’t get me wrong. But it seems there’s a lot more smoke than fire. And a lot of listed trusts like to have that because that’s another tick in the box. We’ve got to have build-to-rent because we’ve got to be seen as we’re a good company. It hasn’t really gained a lot of legs. And putting my old man property hat on, be discouraging. In Europe you have generational renters. And we don’t want that in Australia. We want people to rent, sure, and then invest. You could also say, well, are we encouraging people never ever to buy a house again, or buy a home, ever, if they’re in the build-to-rent environment? So it is a double-edged sword. Certainly, it really hasn’t taken off. And I think it does get more airplay in the press than is reality, physical reality. It doesn’t seem to stack up.
James H Stewart
Yeah, look, I think that makes sense. Think the other thing with build-to-rent is that whilst you are younger or you are you’re in a position whereby you have a full-time sustainable income, the economics work, then what happens with the ageing population? You know, as people get older, if you’re in a rental environment, this happens overseas by the way, so it’s not new. As you age, how do you care for people in rental arrangements with maybe lower or less income in a way that’s dignified for them? Mean, that’s another challenge.
Angus Raine
And think build-to-rent is less than 4% of the market.
James H Stewart
Yeah, yeah, okay. All right, well, let’s just jump back then to the evolution of real estate agency models, because they have changed a lot. Technology’s impacted businesses around the world. We’re seeing it impact from a data perspective, from an artificial intelligence perspective. And these days, if you’re selling a house or buying a house, you’re almost certainly starting on your iPhone or maybe your iPad and flicking through the various domains and realestate.com and things like that. How do you think about the real estate agency model and how it is using and evolving from a technology and data perspective?
Angus Raine
So think our industry will be affected less in the space, particularly around AI, which is good because agency is still a belly-to-belly business. It’s still a contact sport. We’re going to get out there in the marketplace. Having said that, we were back in 2017, we were the first to introduce a predictive AI. And so long ago, people didn’t know what AI stood for. That’s how long? 2017. All that does is scrape the consumer’s online activity and based on that consumer’s online activity on the data, they’ll say, James, because you’re on Bunnings website, you’re on a depreciation schedule website, you’re on the two main portals, real estate portals. We’ll push property to James based on your online behavior and based on your online profile. And it’s been an enormous success. We’ve spent millions and millions of dollars on it and a lot of it’s vendor paid. We can geomap, for example, Port Douglas office, anything over a couple of million, they geomap. Port Douglas is mainly a Melbourne market. It’s a longer winter down south. And I don’t play the Sydney Melbourne thing at all, but it is. Winter so they geomap more than Toorak, Brighton, geomap areas getting people from those markets that can afford two or three million dollar holiday home just to give you an absolute real example it is, it has been a game changer. We can geomap anywhere in the world apart from China and North Korea and that’s an immigration play comes into play then and it has been a game changer. Probably the issue in putting my real estate cap on is it is where it’s slow evolving. A lot of people are a bit slow to adapt and adopt new technology. That is changing because industry is getting a lot younger. But back in 2017 it was a little bit of a push to get a lot of our people to embrace it. Now that’s not an issue. I think we’ve done about 55,000 listings on it. So our data is so smart.
James H Stewart
I love it. Well, Angus, I have to say this has been a great conversation around a whole bunch of different issues. I’m really delighted you come on the show. I think it’s given me some good food for thought around how we think about the affordability crisis and how we think about housing generally at a generational level. So it’s been terrific, some great insights. I’m so glad you could come on. Thank you for coming on the show.
