The Transformations of the Rental Apartment System: Subdivision of Apartment Houses at the beginning of the 1920s

The transformation of apartment houses into condominiums began to spread as a new business practice in Budapest in the first half of the 1920s. Although there were precedents to this phenomenon before and during the First World War, the practice appeared with such frequency in the years following the war that the press took notice and even gave it a special name, subdivision of buildings. In essence it was the sale of existing apartment houses by individual apartments, transforming the buildings into condominiums. This new phenomenon fit in with the slowly emerging trend of reorganizing ownership relationships that became a key factor in housing in the capital.

This practice can be considered the second wave of the spread of condominiums in Budapest, produced by the First World War’s regulated system of the housing trade that continued to be maintained even after the war. The official allocation of apartments simply multiplied the well-known negative aspects of the rental apartment system that had dominated housing in the capital for decades by that time. These aspects included high rents, fear of lease termination, shortage of apartments, and the feeling of being at the mercy of landlords and building superintendents. The regulated housing trade that developed during the war and was only eliminated in the second half of the 1920s made the leasing of apartments a subject of official oversight and allocation, introducing the principle of justified need and the requisitioning of apartments. The scarcity of apartments, which worsened during the war, and the official control of housing allocation led to the freezing of rental apartment trade as well as the development of a black market in the form of so-called key money or security deposits. At the same time, the plan to reestablish free-market housing, which was repeatedly delayed to a later date starting from the beginning of the 1920s, intensified the feeling of helplessness due to the elimination of official rent control and restrictions on lease terminations. These circumstances strengthened the demand for home ownership, which was seen as a middle-class housing ideal even before the war, as a way to escape the official housing market. A new form for this alongside family homes was represented by condominium apartments, which started appearing in Budapest in 1907.

However, apartment construction had shut down due to the war and the regulated housing market, and it had not been able to restart even at the beginning of the 1920s. The lack of capital after the war as well as the high price and unavailability of building materials made restarting housing construction impossible, whether it was family homes or buildings with multiple dwellings. The nearly complete lack of housing construction also hindered the building of cooperative condominiums that had begun to spread a few years before the war, which made the ownership of apartments unachievable. On the other hand, the maintenance and sale of rental apartment houses caused increasingly serious problems within the context of the regulated housing market, eliminating the attractiveness of being a landlord as a form of investment that went beyond the lack of investment capital.

In this situation, the creation of condominiums not through construction but instead through the subdivision of apartment houses that had sporadic precedents from before the war sprang up as a response to the regulated housing market. This became essentially the only way of establishing condominiums in Budapest until 1926, when construction started up again. Unlike the original objective of cooperative housing, this did not produce new apartments, but promised the security of owning a home of one’s own through the purchase of individual apartments. This was important whether it meant freedom from the official assignment of apartments or the ability to invest in smaller single condominium apartments to rent out as opposed to entire apartment buildings, which had become impossible due to the lack of financial capital. It also made it possible to sell apartment houses that were no longer marketable as a whole due to the lack of investment capital. The appearance of this practice at the end of 1922 and the beginning of 1923 was connected to the search for a way out of the regulated housing market and the delay in its termination. It then faded away in conjunction with the start of condominium construction at the end of the 1920s, although it still existed sporadically in the first half of the 1930s.

The business of apartment house subdivision was fundamentally determined by two trends. On the one hand, it was not separate from the other segments of the real estate market, but instead integrated into the spheres of activities for enterprises of varying size that extended from building management to construction. At the same time, it is true that the real estate market was generally characterized by a combination of lot subdivision, apartment house construction, apartment house management, and real estate agencies. On the other hand, the activities aimed at transforming the ownership structures of apartment houses did not prove to be a successful business in any single case. Not only did it not become a widespread practice, the majority of building sales by single apartments that were planned or even initiated stalled during the process and were only partially completed.

It was typically banks and building contractors who took part in the subdivision of apartment houses and the presence of architects was key. Two of the first reorganization projects in the year 1923 were linked to the firm of the architect Lajos Baráth of Martonoš, while the third was performed by the Solo Bank Co. The activities of both the Baráth és Társa (Baráth and Associates) company and Solo Bank extended to a broad palette of real estate dealings, including construction and management. However, a company under the name Öröklakás Házépítő, Ingatlanszerző és Értékesítő Rt. (Perpetual Apartment Building Construction, Real Estate Acquisition and Sale Co.) was created in May of 1925 expressly for the purpose of organizing rental apartment buildings into condominiums. In fact they also dealt with the purchase and sale, management, and utilization of real estate as well as construction. The key role of architects was also apparent with them, as the architect Jenő Zoltán Balogh was amongst the founders of the company.

The first known case of a conversion after the war was conceived in November of 1922 with the idea of transforming the rental apartment house ownership structure of the building at 81 Budafoki Street in the 11^th District built in 1910. Sales began from the start of 1923 and stretched for several years. Hardly a fifth of the units were purchased from the commencement of sales to the end of 1924. Considering the nearly five-year period extending to the end of 1927, the sale of only a quarter of the units had been completed according to the entries of the land register.

The company of Lajos Baráth of Martonoš arranged the sale of the individual units in the apartment house on 1 Ferenc Square in the 9^th District between April and June of 1923, then began converting the building at 21 Rippl-Rónai Street (21 Bulyovszky Street at that time) in the 6^th District in November of 1923. While the sales of the apartments in the former building in the Ferencváros district were successfully completed in a short time, the reorganization of the latter building in the Terézváros district ended in failure. Hardly a third of the apartments became individually owned, and only a total of eleven of the at least thirty-five units in the building were sold in three years, mostly during the half-year period between November of 1923 and May of 1924. The larger units were purchased, while the smaller ones facing the courtyard remained.

The Solo Bank Co. also became involved in the new type of housing business, although this financial institution that had specialized in various real estate projects since its inception is only linked to the sale of properties broken up as individual units in two instances. One building was on the Pest side at 13 Mester Street in the 9^th District and one on the Buda side at 5/c Buday László Street (5/c Tudor Street at that time) in the 2^nd District. The sales for the building at Mester Street built in 1912-1913 began after its purchase at the end of November in 1923, but stretched until February of 1926. The apartment house at Buday László Street was also built in 1911-1912, and sales presumably began not long after the bank bought the building in May of 1923, lasting until they were successfully completed in August. However, some of the ownership shares remained with the bank, which finally sold its interest off in 1936 at a loss. The bank’s business activities related to these two buildings proved to be decidedly successful during 1924, but this favorable trend ended following this. The company was not able to succeed as a whole, and the failure of its building subdivision branch certainly played a role in this. 

The Öröklakás Rt. (Perpetual Apartment Co.) was established with the participation of politicians, landowners, high-ranking officials in state administration, and military officers, and similarly only successfully concluded its first two years in business, between 1925 and 1927. During 1925-1926 it converted five apartment houses in Buda into cooperative building associations (34 Lövőház Street, 9 Bercsényi Street, 46 Batthyány Street, and 9 and 31 Logodi Street), but more than a third of the apartments and other units remained unsold even in the spring of 1927. Following the original momentum, the company’s energy waned. The business took a downturn and they were not able to record a profit starting from the financial year of 1927. They participated in the transformation of the ownership rights of yet another apartment building in Buda in 1927, at 7/a Alkotás Street, but they were only able to successfully create its building association in the spring of 1929. The commercial results fell short of expectations in connection with the delay in freeing up apartments in 1927–1928, and while they planned the construction of new condominium buildings in 1927, this did not take place even in the next year. The corporation only produced losses starting from 1929, closely related to the worldwide depression. In addition to the generally poor economic and financial conditions, they followed the same path as other enterprises experimenting with subdividing buildings. Their commercial calculations for subdividing apartment houses did not pan out, since it was not the conversion of apartment houses into condominiums that proved profitable, but the construction of new condominium buildings. The board in its report related to the 1933 financial year was forced to state that condominiums made from previously built apartment houses simply were not competitive with the newly built, modern condominiums. Due to this, they were not able to sell the condominiums units created from the subdivision of buildings. Not even the renovation and modernization projects performed in 1934 were able to help, as the losses proved to be impossible to recoup.  

The subdivision of apartment houses took place in differing manners depending on the type of enterprises that were performing the work. According to one basic type, the building owner hired a company to perform the reorganization and sale for a commission. The company of Lajos Baráth of Martonoš received a commission in this manner. In this case it only played an intermediary role in terms of the ownership rights, facilitating the transfer from the owner of the apartment building to the owners of the units sold. The essence of the second basic process differed from this in that a company specialized in subdivision stepped forward as an investor and first purchased the entire apartment building. It then performed the work of reorganization and sales as the owner of the given building, and had an interest in the entire business due to the investment of its own or borrowed capital. This is how Solo Bank and the Öröklakas companies operated. There were lower-volume representatives of this type as well. The architect Fülöp Weintréb and his business partner, Mrs. Jakab Kudelka, the widow of a building contractor, tried to sell off three newly built apartment houses their company had built in this manner. The reorganization and sale of their building at 46 Márvány Street took place, but the conversion of the property at number 42 was not successful and they sold it off as an apartment building a year after it was built. They also transformed the building at 14 Hollán Street in the district of Újlipótváros unsuccessfully into a condominium association. It did not prove to be viable, so the building functioned as an apartment building in the wake of a new sale. This business brought the little company down into bankruptcy after just a few years of subdividing apartment houses, which did not prove to be the key to business success for them. Alongside all of this, there were examples (23 Keleti Károly Street in the 2^nd District) when the owner of an apartment house themselves attempted to sell their property off as individual units, or at least there is no evidence that they hired a company to do this for them.

The main reason for the failure of the apartment house subdivision business was in the outdated architectural nature of the buildings. The housing supply in Budapest at the beginning of the 1920s overall was not considered new. More than 80% of the residences were more than fifteen years old and nearly two-thirds of them had been built before 1900, so were at least twenty-five years old. Essentially, the apartments built between 1900 and 1912 were the most recently constructed housing stock in Budapest, and of these, the residential buildings erected in the few years before the war between 1910 and 1912 were the newest. The majority of the apartment houses affected by the sale of individual units were in this category. The largest set was made up of buildings constructed between 1910 and 1912 right before the war and the second biggest group were newly built structures from the second half of the 1920s. Of the nineteen examples, a total of three were built in the 1880s and 1890s. In total, subdivision of buildings was expressly aimed at the housing stock constructed after 1900.

However, despite their recent construction, these buildings were not up-to-date architecturally. The majority were comprised of buildings constructed around the edge of the entire lot enclosing a courtyard with apartments opening off the courtyard loggia. A total of five of the nineteen known cases were buildings that had an architectural arrangement that was considered modern in the middle of the 1920s, since they followed the style of development that included connected courtyards, cour d’honneurs, or forecourts, eliminating the enclosed courtyard, encircling loggias, and interior courtyard apartments (23 Keleti Károly Street in the 2^nd District, 21 Rippl-Rónai Street in the 6^th District). While all of these were constructed after 1900, mostly from the few years before the First World War, they only represented a portion of the group built after 1900, half of which were also built according to the outdated development pattern of enclosed courtyards. Thus, the subdivision of buildings aimed at the portion of the Budapest housing stock that could be called newer was to no avail, as types of buildings that had become outdated and followed genuinely obsolete construction styles after 1900 dominated, not the types following more up-to-date development patterns.

In addition to the fact that the apartment houses involved in the sale of individual units were not amongst those following latest trends from an architectural perspective, there were no signs that the conversion would be accompanied by the modernization of the buildings. The fundamental circumstance that induced subdivision, the lack of capital and uneconomical system of apartment house ownership, eliminated this possibility from the beginning. Therefore, once the construction of condominium buildings began after 1925, the business created from the sale of individual units in apartment houses proved to be uncompetitive. The new buildings with condominium units were already constructed on the principle that privately-owned apartments had to represent a higher standard of architecture and comfort, and must provide a proper level of modernity in accordance with this. Subdivision as a part of the process of the transformation of the housing system ownership structure did not only lag far behind in volume compared to the construction of condominiums that had begun, it also lost out in terms of its products not being competitive. Thus, it proved to be a short-lived phenomenon that was a dead-end for the spread of condominiums and was quite soon passed by. The sale of the outdated stock of housing represented by the enclosed inner courtyard with a loggia did not prove to be a path worthy of duplication on its own, and certainly could not stand up against the competition of new condominiums that appeared within a few years.

Ágnes Nagy (Translation from Hungarian: Charles Horton)