What Drives the Growth of Informal Settlements in Urban Areas?

Informal settlements are among the most visible features of urban life in India. Walk through any large city and you will see clusters of self-built homes pressed against railway lines, riverbanks, and the edges of commercial districts. According to the 2011 Census, around 65.5 million people lived in slums, which was roughly 17.4 percent of the urban population at the time. These settlements do not appear by accident. They are the predictable outcome of how cities grow, how income is distributed, and how governments plan and manage urban space. Understanding why informal settlements form is the first step toward building cities that work for everyone who lives in them.

Migration and the pace of urbanisation
Rural-to-urban migration
Rapid population growth in cities
The shortage of affordable housing
Economic disparities and the urban poor
Poverty and low incomes
Insecure land tenure
Limited formal employment
Inadequate governance and planning
Gaps in urban planning
Underinvestment in infrastructure and services
Policy responses and their limits
The state’s complicated role
How the causes reinforce each other

Migration and the pace of urbanisation

The growth of informal settlements is tied closely to the speed at which cities expand. When population growth outpaces the supply of formal housing and services, the gap is filled by informal construction. This is the central dynamic behind almost every slum in the country.

Rural-to-urban migration

The single largest driver of slum growth is the movement of people from villages to cities in search of work. Crop failures, low farm incomes, debt, and the lack of non-agricultural jobs push people out of rural areas. The promise of wages, education, and security pulls them toward urban centres. The Centre for Science and Environment notes that migrating populations tend to occupy whatever land is available, which results in informal settlements and unplanned colonies. Over the past few decades, tens of millions of people have made this journey. They arrive faster than cities can house them.

Rapid population growth in cities

Cities are not only absorbing migrants. They are also growing from within through natural increase. Urban India is projected to add hundreds of millions of residents in the coming decades, with the urban population expected to reach around 600 million by 2031. This scale of growth places enormous pressure on land, water, sanitation, and transport. Where the formal system cannot keep up, informal settlements expand to meet the demand for shelter.

The shortage of affordable housing

Even when people have steady work, formal housing is often beyond their reach. Real estate prices in major cities are far higher than what working-class families can afford. The result is a wide housing affordability gap between what people can pay and what the formal market charges. When this gap is too large, people settle in informal areas because there is no realistic alternative. Mumbai illustrates the problem sharply. The city needs roughly one lakh new affordable units each year but builds only a fraction of that. PMAY-U data has pointed to a shortfall of close to 18 million housing units in Indian cities, a shortage that compels low-income families to settle in whatever informal space is available. As long as supply lags demand at the lower end of the market, informal settlements will continue to grow.

Economic disparities and the urban poor

Migration explains how people arrive in cities, but economics explains why they end up in informal settlements rather than formal housing. Slums are, at their core, a spatial expression of inequality. Cities generate enormous wealth, yet that wealth is shared unevenly, and those at the bottom of the income ladder have few housing options.

Poverty and low incomes

Poverty is both a cause and a consequence of informal living. Many residents earn too little to afford formal housing, so they settle informally. Once there, limited access to credit, formal banking, and stable services makes it hard to climb out of poverty. Slum populations represent the lowest-income strata of the urban economy. Informal settlements are not a temporary stop for most families. They become long-term homes because the economic conditions that created them rarely improve quickly.

Insecure land tenure

One of the defining features of informal settlements is the absence of secure legal rights to the land. Residents may live in the same place for decades without a clear title or patta. This insecurity has serious consequences. Without legal recognition, families hesitate to invest in better housing because they could be evicted at any time. Research on land tenure programmes in India shows that legal tenure documents stimulate incremental investment in building and become a basis for channelling government funds for housing improvement. The flip side is that this security often lasts only until the land becomes valuable enough for redevelopment. The Observer Research Foundation argues that India’s housing problem is driven as much by congestion, lack of tenure security, and inadequate basic services in existing informal housing as by an absolute shortage of structures.

Limited formal employment

The kind of work available to the urban poor also shapes where they live. Most slum residents are employed in the informal sector as construction workers, domestic help, street vendors, waste pickers, and daily-wage labourers. These jobs are low-paid and insecure, and they rarely come with benefits or proof of stable income. Without formal payslips or contracts, workers struggle to qualify for home loans or formal rental agreements. Their work also ties them to specific locations. Many informal settlements cluster near commercial hubs precisely because residents cannot afford to commute long distances or live far from where the work is. Proximity to livelihood is often more important than the quality of housing itself.

Inadequate governance and planning

If migration and economics create the demand for informal housing, weak governance allows it to spread unchecked. Informal settlements are partly a story about what governments fail to do, and partly about the choices they make.

Gaps in urban planning

Indian cities have struggled to plan for the scale of growth they face. According to the Ministry of Housing and Urban Affairs, only about 30 percent of urban land is appropriately planned. Master plans are frequently outdated, poorly enforced, or disconnected from the realities of low-income residents. Policies and planning frameworks often disregard the needs of the urban poor, which produces an unequal distribution of land, housing, and infrastructure between the formal and informal city. When planning fails to make room for the people who actually keep cities running, those people make room for themselves.

Underinvestment in infrastructure and services

Informal settlements are defined by what they lack: piped water, sewerage, drainage, paved roads, electricity, and waste collection. The slum compendium prepared for the government describes these areas as subject to acute over-crowding and insecure land tenure, with limited access to safe drinking water, sanitation, drainage, and basic civic services. Many settlements also sit on environmentally fragile or hazardous land prone to floods and landslides. This is not only a question of money. It reflects a reluctance to extend services to settlements that are not legally recognised, which traps residents in a cycle of informality and deprivation.

Policy responses and their limits

The government has not ignored the problem. Launched in 2015, the Pradhan Mantri Awas Yojana-Urban (PMAY-U) became the largest affordable housing programme in the country’s history, offering subsidies and support across several verticals to economically weaker sections and low-income groups. Yet the results have been mixed. Analysts point out that the programme has not created enough formal urban apartments because most units were self-built on peri-urban plots rather than added to the dense city core where demand is highest. The verticals designed for the most vulnerable households have performed the weakest, often due to poor location and missing infrastructure. The lesson emerging from these efforts is that simply building structures is not enough. Tenure security, public transport access, and social infrastructure are needed to make housing genuinely livable.

The state’s complicated role

Governance failures are not always the result of neglect. Research on Mumbai’s slums argues that the state sometimes plays an active part in producing and sustaining informal settlements. Because slums serve social, economic, and political functions, authorities have at times allowed new settlements to arise, legalised existing ones, and provided services and patronage to residents. Informal welfare provision and the value of slum dwellers as a voting bloc give political actors reasons to let these areas persist. This means informal settlements are woven into the political fabric of the city, which makes them difficult to address through technical solutions alone.

How the causes reinforce each other

It is tempting to treat migration, poverty, and governance as separate problems, but they feed into one another. Migration increases the demand for cheap housing. Low incomes and informal work prevent people from accessing the formal market. Weak planning and underinvestment leave the gap unfilled, and political incentives allow informal settlements to consolidate over time. Census data shows the uneven spread of this process across the country. States such as Andhra Pradesh have recorded among the highest proportions of slum population, while Tamil Nadu reported the largest number of towns with slums. These patterns reflect local differences in industrial growth, land markets, and governance. Addressing informal settlements therefore requires action on all three fronts at once. Building houses without securing tenure, or planning land without investing in services, leaves the underlying drivers untouched.

What do you think? If a city cannot keep pace with the people arriving to work in it, should informal settlements be seen as a failure of planning or as a rational response by residents to a system that left them no other option? And what would it take for the urban poor to be recognised not as a problem to be cleared, but as legitimate citizens with a rightful claim to the city they help build?

References

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What Drives the Growth of Informal Settlements in Urban Areas?

Table of Contents

Migration and the pace of urbanisation 🔗

Rural-to-urban migration 🔗

Rapid population growth in cities 🔗

The shortage of affordable housing 🔗

Economic disparities and the urban poor 🔗

Poverty and low incomes 🔗

Insecure land tenure 🔗

Limited formal employment 🔗

Inadequate governance and planning 🔗

Gaps in urban planning 🔗

Underinvestment in infrastructure and services 🔗

Policy responses and their limits 🔗

The state’s complicated role 🔗

How the causes reinforce each other 🔗