After the political changes at the end of the 1980s the Hungarian government tried to manage the housing crisis related to the economic decline and the unsustainable subsidy system of the socialist period. The government-backed out from the housing sector, decreasing the subsidies and diminishing its direct role. The housing policy of 1990s could be characterized basically as crisis management: the two major programs were the privatization of the state rental sector and the consolidation of the ‘old loans. the financial gains of privatization and early repayment of the loans were proportional to the households’ wealth, thus low-income households were trapped in the residual zed social rental sector or were not able to pay back their mortgage at a discount price.

The Housing law regulating the rental sector and the Social Law made it clear that the government does not take responsibility for housing, but leaves it open for future intervention. In 1990 the officially measured housing subsidies reached 3.7% of the GDP (World Bank, 1990), and in the 1990s more than two-thirds of the total home-owner subsidies were spent on the interest subsidy of the ‘old loans’. In 1993-94 the subsidies related to borrowing were reduced substantially, to less than 1% of the GDP. In the second half of 1990s new institutions were set up and the legal background improved. Meanwhile, the level of subsidies gradually declined as a consequence of the decreasing housing output. Two basic housing financial institutions were established: contract savings banks4 and mortgage banks. The Law on contract savings banks5 was very controversial, as the subsidies given to savers made the housing subsidy system even more regressive, and there was no direct relation between the subsidies and the increase in housing investments. A more important development was the establishment of mortgage banks, which were ready to launch mortgage lending to a larger extent in case the macroeconomic conditions (residential incomes, housing investment demand, etc.) change.