East-central European cities arrived at a new phase of their development after the collapse of the former political system. This paper seeks to explore the impact of recent political and economic changes in Budapest, focusing mainly upon problems linked to the privatisation of the built environment and economic life. The rapid transformation of the economy not only reorganises the function and the role of Budapest within its wider region, but also reshapes the internal structure of the city. Due to the large-scale privatisation of housing and the very dynamic growth of the private economy, there is a functional conversion of the central part of the city. Small-scale businesses are mushrooming, and many of the newly established firms rent or buy recently privatised flats for office and business purposes. The dynamic growth of the so-called service sector and business-oriented employment also tends to generate a rapid population change and the improvement of the socio-economic status of certain neighbourhoods.