Causes Behind the Rise of Informal Settlements in Cities

Every day across the globe, millions of people build their homes on land they don’t legally own, in neighborhoods that lack basic water and sewage systems, electricity, or paved roads. These communities, known as informal settlements, now house over one billion people worldwide. From the bustling favelas perched on Brazilian hillsides to the sprawling slums of Nairobi and Mumbai, these settlements represent one of the most pressing challenges in urban development. Understanding what drives their formation is essential for anyone working toward sustainable, equitable cities.

Population growth and migration patterns 🔗

One of the most powerful forces behind informal settlements is the unprecedented pace at which people are moving from rural areas to cities. This rural-to-urban migration represents one of the most significant demographic shifts in modern history, fundamentally reshaping urban landscapes across Africa, Asia, and Latin America.

Consider what’s happening in cities like Dhaka or Lagos. While it took London more than a century to grow from one million to eight million residents, these cities are experiencing similar growth in just three or four decades. A number of interrelated factors have driven the emergence of informal settlements: population growth, rural-urban migration, lack of affordable housing, weak governance, economic vulnerability and low-paid work, and displacement caused by conflict, natural disasters and climate change. When formal housing markets simply can’t keep up with this influx, people don’t disappear-they create their own solutions.

Push and pull factors driving migration 🔗

Migration to cities follows predictable patterns. On the rural side, several forces push people away from agricultural areas. Climate change is making farming increasingly unpredictable, with droughts and floods destroying crops and livelihoods. As farmland gets divided among growing families, individual plots become too small to support a household. Meanwhile, rural areas often lack adequate healthcare facilities, quality schools, and basic infrastructure, motivating families to seek better opportunities elsewhere.

Cities simultaneously pull migrants with the promise of opportunity. Urban centers concentrate economic activity, offering diverse employment options in both formal and informal sectors. They provide superior access to education, healthcare, and social services. Perhaps just as importantly, established migrants create social networks that help friends and family from their home regions settle and find work, creating what researchers call chain migration.

When rural migrants arrive in rapidly growing cities, they typically find formal housing financially out of reach or bureaucratically impossible to obtain. Informal settlements emerge as an immediate, practical solution that allows newcomers to establish an urban foothold while maintaining crucial proximity to employment opportunities. Research shows that 88.9% of inhabitants of informal settlements are migrants, highlighting the direct connection between population movement and settlement formation.

Economic constraints and the affordability crisis 🔗

Even when people reach cities with hopes of economic advancement, structural economic barriers often channel them toward informal housing. The gap between what low-income urban residents can afford and what formal housing costs represents one of the most persistent drivers of informal settlement growth.

The widening affordability gap 🔗

In many rapidly urbanizing cities, the formal housing market operates entirely beyond the reach of average earners. Urban land prices often appreciate faster than wages, making legally serviced plots unaffordable for most working families. Construction materials and labor costs have risen dramatically across developing countries. Perhaps most significantly, low-income households typically lack access to mortgage financing due to informal employment, insufficient documentation, or inability to make required down payments.

Major causes were migration of persons from rural to urban areas, too expensive formal land price, availability of sloppy land, condominium housing shortage, and could not afford government-led housing payment. These economic barriers can make formal housing require five to ten times the annual income of low-income families, rendering informal settlements the only viable option.

Income constraints and informal economies 🔗

The economic realities facing urban poor populations create powerful incentives for informal settlement development. Many informal settlement residents work in the informal economy with irregular earnings and no employment protections. Day laborers, street vendors, and domestic workers face unpredictable income streams that make regular housing payments extraordinarily challenging. When families must choose between housing investments and immediate needs like food, transportation, healthcare, and children’s education, housing often takes lower priority.

For many households, informal settlements represent rational economic decisions. They provide basic shelter while allowing limited income to stretch further for other essential needs. This isn’t a failure of planning by residents-it’s an adaptive response to market failures and exclusionary formal systems that don’t accommodate their economic circumstances.

Insecure land tenure and its cascading effects 🔗

Perhaps no factor is more crucial to understanding informal settlements than land tenure insecurity. When people cannot legally own or formally rent the land they occupy, it creates a cascade of problems that perpetuate poverty and severely limit development opportunities.

The vicious cycle of tenure insecurity 🔗

Insecure tenure creates a complex feedback loop. Without access to formal land titles, low-income households resort to informal land acquisition through squatting, informal purchases, or unauthorized subdivision. Without secure tenure, residents naturally hesitate to invest in housing improvements, reasonably fearing that eviction could erase their investments overnight. Lack of secure land tenure limits the creditworthiness of areas, creating a barrier for financial institutions and local authorities to invest in housing and infrastructure upgrading.

Utility companies and government agencies frequently use lack of formal tenure as justification for withholding basic services like water connections, electricity hookups, and waste collection. The combined effects of tenure insecurity-poor housing quality, limited services, and constant eviction threat-entrench poverty conditions. This cycle manifests physically in temporary construction materials, minimal infrastructure investment, and heightened vulnerability to disasters.

How tenure insecurity perpetuates poverty 🔗

The uncertainty of insecure tenure affects every dimension of residents’ lives and opportunities. Why invest in durable construction materials, improved sanitation, or small business infrastructure when it could all be demolished tomorrow? This rational response to uncertainty keeps entire communities trapped in substandard conditions.

The ripple effects extend far beyond housing quality. Poor housing conditions lead to health problems, which reduce earning capacity. Lack of formal addresses limits access to credit, banking services, and sometimes even formal employment opportunities. Children in insecure settlements often struggle to access quality education, perpetuating intergenerational poverty patterns. Research demonstrates that communities with secure tenure experience dramatic improvements in housing quality, health outcomes, and economic activity within just a few years of gaining legal recognition.

Policy failures that worsen insecurity 🔗

Well-intentioned government policies sometimes exacerbate tenure insecurity. Zoning laws that prohibit residential use in certain areas, building codes impossible to meet with limited resources, or urban beautification projects that prioritize aesthetics over people’s needs all contribute to the problem. When cities declare informal settlements illegal without providing affordable alternatives, they don’t eliminate the settlements-they simply make residents more vulnerable to exploitation and less likely to invest in improvements.

Evictions that displace informal settlement residents lead to financial loss and often weaken their livelihoods, further entrenching poverty. Fear of eviction becomes a constant source of stress, affecting mental health and undermining community cohesion. The threat of displacement reinforces residents’ exclusion from policy and decision-making processes precisely because authorities view them as temporary or illegitimate.

Geographic and environmental marginalization 🔗

Informal settlements often emerge in areas that formal developers deliberately avoid-flood plains vulnerable to seasonal inundation, steep hillsides prone to landslides, zones near industrial facilities, or on contaminated land. These locations become available for informal occupation precisely because they’re considered unsuitable or too risky for conventional development. For many families, they represent the only affordable option in expensive urban markets.

This geographic marginalization creates additional layers of challenge. Residents face disproportionate health risks from pollution, contamination, or environmental hazards. The difficult terrain makes it exponentially more expensive to extend basic services like water pipes, electricity lines, or paved roads. These factors reinforce cycles of exclusion and poverty, making it harder for residents to improve their situations even when they want to invest in their homes and communities.

Moving toward solutions 🔗

Understanding these interconnected causes is essential for developing effective responses. Rather than viewing informal settlements as problems to be eliminated through eviction or demolition, successful approaches recognize them as rational responses to systemic urban challenges. Effective solutions typically combine secure tenure programs that give residents legal standing, affordable housing development that actually matches income levels, improved urban planning that anticipates growth rather than reacting to it, and expanded economic opportunities that address the root causes of poverty.

Cities like Medellín in Colombia have demonstrated how comprehensive approaches that simultaneously address multiple causes can transform informal settlements into thriving neighborhoods. The key lies in recognizing that informal settlements aren’t simply housing problems-they’re symptoms of broader failures in urban governance, economic systems, and social policy that require integrated, long-term solutions.

What do you think? How might your city or community better address the root causes of informal settlements rather than just their symptoms? What role should residents themselves play in designing solutions for their neighborhoods?

References

1. https://gsdrc.org/topic-guides/urban-governance/key-policy-challenges/informal-settlements/
2. https://pmc.ncbi.nlm.nih.gov/articles/PMC11570488/
3. https://pubmed.ncbi.nlm.nih.gov/36322351/
4. https://unhabitat.org/sites/default/files/2025/09/hsp-oewg-h.2025-inf-4_proposed_recommendations_on_informal_settlements.pdf