PurposeThe paper discusses ethical issues related to the adaptive reuse of ruin heritage on the example of the so-called ruin bars in Budapest's District VII. It explores how heritage discourse can contribute to the sustainable development of urban neighborhoods. The authors address the question by focusing on how a processual approach can be instrumental in identifying responsible and socially sustainable ways to reuse dilapidated heritage in a residential area.Design/methodology/approachThe problem is analyzed through a case study based on field observation, participant observation, stakeholder interviews, policy analysis and media and social media content analysis.FindingsThe authors argue that ethical reuse of ruin heritage must take into consideration the values and interests of multiple stakeholders and the broadest range of consequences at the level of neighborhood and city. An integrated heritage and planning policy should consider and involve as active participants all the heritage communities concerned. Importantly, these groups, comprising both new and longtime residents, must include the vulnerable and marginalized.Practical implicationsThe findings can be used by heritage managers for identifying and addressing ethical issues in their adaptive heritage reuse practices and by policymakers for integrating heritage management in urban development and making cities more inclusive (SDG #11).Originality/valueThe paper explores how ethical it is for business enterprises to build on the ruin esthetics in a residential district and what the ethical implications of this reuse process are for various stakeholders.