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Once Slovakia became an independent nation, it quickly moved away from government intervention towards privatization of its municipal housing stock by passing a comprehensive array of privatization laws, with a provision for forming condominium associations. In some ways, the government may have gone further on the policy evolution curve than the public was prepared for. Starting in 1991, Slovakia devolved the responsibility for state rental housing to municipalities.

Then a law was passed to 'individualize' cooperative housing with the intent of hastening their privatization. In this process, explicit state subsidies for rental housing were terminated in 1994 and utility costs for all tenure forms were liberalized to be closer to the cost (with exception of heating and hot water).

The continued reform programme put an end to subsidized lending for home construction in early 1992. Subsequently, long-term lending for house purchase ceased to exist, although two government-backed building savings societies (the first in Eastern Europe) were allowed to operate. Most lending institutions involved with housing loans knew that they had no assured means of recovering their funds, despite the presence of a mortgage. The rental market was not in a better situation as it was still not regulated by the market, and private landlords had no legal power to evict those who did not pay. The cooperative apartments were still not privatized. By and large, the forces of the market were not well developed.

As early as 1993, the government formulated a scheme called means-tested housing allowance. Such a scheme had been recognized as a necessary and vital means to correct price distortions and target subsidies. It would strike the balance between the household affordability to buy a house and the cost of standard housing. The Ministry of Labour and Social Affairs was in charge of the implementation of the housing allowance because it is to be incorporated into the existing safety-net structure.

Contradictory policies in the housing market seem to be visible when considering the ongoing privatization of municipal rental housing on the one hand and condominium associations being formed for those multi-unit buildings that had been fully privatized. State savings banks were more generous than commercial banks in issuing a few subsidy-free 'mortgages'.

Commercial mortgage banks were waiting for a law to make housing mortgages enforceable in order to start making loans for housing. Meanwhile, the public is getting restless in wanting more housing to be built, whether supported by state intervention or not. State intervention is certainly the most direct way of responding, even though it undermines the development of market processes.

Housing finance Funds provided by State Funds for Housing Development (subsidies and interest-free loans), Construction Savings banks and mortgage banks are the three pillars of housing finance in Slovakia. The concept of building societies was first introduced in Slovakia in 1992.

Since 1992 and prior to the C SOB's (a subsidiary of the Czech Bank's) operation in 2000 there were two building societies: Prva stavebna sporitelna (PSS) and VUB Wustenrot (VUBW). By providing more than 70% of loans and acquiring 77% of new contracts PSS was the clear market leader in 2003, followed by VUBW and C SOB with 22%/14% and 7%/9% market shares, respectively.

The mortgage banking activities began with the operation of VUB, the second largest bank in Slovakia, when it obtained its mortgage licence. The progress of the mortgage segment was rather slow until the introduction of direct (subsidized interest) and indirect (tax deductions) state support in 1999. The market size however, had doubled by 2002.