Post-socialist housing meets transnational finance: Foreign banks, mortgage lending, and the privatization of welfare in Hungary and Estonia

This paper asks how public policies have shaped the build-up of crisis-prone housing finance markets and whether they have mitigated or reinforced the associated risks for citizens in East Central Europe. Analyzing the mortgage lending booms and busts in Hungary and Estonia, the paper finds that different policy priorities did not matter too much for the build-up of the mortgage boom and the associated risks households had to face. Rather, early decisions for encompassing house privatization and the non-existence of mortgage markets have led to a pent-up demand for housing finance, while the transnationalization and EU convergence of the financial sector have provided the supply for mortgage lending from the early 2000s on. Policy-makers in both countries, albeit to different degrees, have supported the mortgage boom and have by-and-large failed to correct for the risks of their population. In the wake of the global financial crisis, however, policies started to sharply diverge. While the Estonian government has relied on market mechanisms and private market actors to cope with the crisis, the Hungarian government engaged in far-reaching interventionist policies to unmake some of its devastating consequences for indebted house-owners. The paper explains its findings by the combination of different welfare state traditions and patterns of party competition.