Why Informal Settlements Form: Causes and Urbanization Factors

Walk through the outskirts of any large Indian city and you will encounter a familiar sight: tightly packed homes built from tin sheets, tarpaulin, and salvaged brick, lining narrow lanes that the official city map does not acknowledge. These are informal settlements, and they are not random accidents of urban growth. Their formation follows a clear, predictable logic shaped by population pressures, broken housing markets, and weak land governance. Roughly 65 million people, or 17.4% of urban households, lived in slums according to the 2011 Census, and most major metros continue to expand their informal footprints. Understanding why these settlements form is the first step to addressing one of the most visible faces of urban inequality.

Population growth and the migration engine 🔗

The single most powerful driver behind informal settlements is the sheer pace at which cities are absorbing new residents. About 34% of India’s population lived in urban areas in 2019, and this share is projected to reach 40% by 2030, adding tens of millions of people to cities that are already struggling to house their existing residents. When formal housing supply cannot match the speed of population growth, the gap is filled by improvised settlements built on whatever land is available.

Two demographic forces feed this expansion. The first is natural increase, where births within cities exceed deaths. The second, and more visible, is migration from villages to cities. Internal migration in India is dominated by people moving in search of work, education, and basic services, and the destinations are concentrated in a handful of metropolitan regions. Policies and urban planning frequently disregard the needs of the urban poor, resulting in an unequal distribution of resources between residents of formal and informal cities, which means new arrivals are pushed straight into the informal sector from day one.

Push factors: why villages cannot hold people back 🔗

Rural distress remains the strongest push behind migration. Small landholdings, dependence on the monsoon, falling productivity, and the absence of stable non-farm work make agriculture an unreliable livelihood for millions. A single failed harvest, a livestock disease outbreak, or a sudden flood can wipe out a year’s income, and rural households rarely have savings or insurance to absorb the shock.

Environmental change has sharpened these pressures. Erratic rainfall, land degradation, and recurring droughts in states like Bihar, Uttar Pradesh, Odisha, and parts of Rajasthan have made farming increasingly precarious. A detailed study of migrants from Uttarakhand to Dehradun found that education, employment opportunities with associated income, and access to facilities were the dominant reasons people left their villages. Caste discrimination, gender-based restrictions, and the lack of decent schools or hospitals add further reasons to leave.

Pull factors: what cities promise 🔗

On the other side, cities exert a strong gravitational pull. Construction sites in Bengaluru, Mumbai, Gurgaon, and Hyderabad need armies of daily-wage labour. Domestic work, garment manufacturing, food delivery, security services, and street vending absorb migrants who arrive with little capital and limited formal education. Wages, even at the bottom of the urban economy, are typically two to three times what comparable rural work pays, and they arrive throughout the year rather than only during harvest.

Cities also offer something villages often cannot: anonymity, access to specialist healthcare, secondary and higher education, and the possibility of escaping rigid social hierarchies. For young people in particular, the city represents a wider horizon. National policies sometimes inadvertently widen the rural-urban gap, with higher investments in urban infrastructure compared to rural development creating a pull factor that entices rural inhabitants to move to cities. The unintended consequence is over-urbanisation, where population growth outpaces a city’s ability to provide housing and services.

Poverty and the missing affordable housing market 🔗

Migration alone does not produce informal settlements. People settle informally because the formal housing market does not serve them. Real estate prices in Indian metros have climbed far beyond what a construction worker, a domestic helper, or a street vendor can afford to rent, let alone buy. A family earning ₹15,000-₹25,000 a month in a city like Mumbai or Delhi simply cannot access a one-room formal apartment near their workplace.

The gap is structural. Private developers focus on middle-income and luxury housing because margins are higher and approvals are easier. Public housing schemes, while well-intentioned, have historically fallen far short of demand. The Ministry of Housing and Urban Affairs has run several programmes, including Pradhan Mantri Awas Yojana – Urban, which aims to provide affordable housing to urban poor families. Yet implementation gaps, location issues (many units are built far from job centres), and slow allocation have meant that the supply of formal affordable housing remains a fraction of the actual need.

How land policies make the problem worse 🔗

Land is the binding constraint in Indian cities, and policy choices have made it scarcer than it needs to be. Restrictive zoning rules, low floor area ratios in many cities, and complex building approval processes inflate the cost of legally built housing. Hoarding of land by private entities and corruption in land allocation distort the real estate market, pushing the poor to illegal settlements.

Public land is often locked up in defence holdings, railway parcels, port trusts, and underused government plots. When affordable housing is built, it is frequently located on the urban periphery, disconnected from jobs and public transport. A vegetable seller cannot commute three hours each way, so an unaffordable home near the market beats a free home on the outskirts. This is the unspoken calculation behind most slum locations.

The role of insecure tenure 🔗

Once a settlement takes shape, its trajectory depends heavily on whether residents have any legal claim to the land they occupy. Most do not. They live under what scholars call insecure tenure: an arrangement where occupancy is tolerated but never formally recognised, and eviction is always a possibility. This single feature shapes almost everything else about life in informal settlements.

Why insecurity discourages investment 🔗

When a family does not know whether their home will exist next year, they have little reason to invest in it. Although informal tenure enables easy and quick low-cost access to land, it hinders the provision of urban infrastructure and services, discourages investment in housing, distorts land use, and results in loss of safety nets and job networks, trapping dwellers of informal settlements in poverty. Households use temporary materials, postpone upgrades, and avoid connecting to utilities that require proof of address.

The same logic operates at the level of the city. Municipal authorities are often reluctant to extend piped water, sewage lines, paved roads, or electricity to settlements they classify as illegal, partly because doing so could be read as legitimising the occupation. The result is a vicious circle: settlements remain unserved because they are informal, and they remain informal partly because they are unserved.

Tenure, credit, and the poverty trap 🔗

Insecure tenure also blocks one of the few wealth-building tools poor households could use. Without a clear title, slum residents cannot use their home as collateral for formal loans, which keeps them dependent on informal moneylenders charging punishing interest rates. The State of Odisha is implementing a state-wide land-titling initiative to improve tenure security of a million slum-dwellers through the Odisha Land Rights to Slum-dwellers Act 2017, fashioning the title as a limited instrument that assures the possibility to inherit and aims at facilitating mortgage for housing-backed lending. The Odisha model is among the most ambitious attempts in the country to break this cycle, though it remains an exception rather than the norm.

Tenure insecurity also weakens political voice. Residents fear that demanding services too loudly could draw attention to their illegal status. Local politicians exploit this dependence, offering temporary protection in exchange for electoral support, which entrenches a patron-client relationship rather than building rights-based citizenship.

How the pieces fit together 🔗

Informal settlements are not the result of a single failure. They emerge where rapid migration meets an unaffordable housing market, restrictive land policy, and weak tenure rights, all reinforcing each other. A migrant arrives in the city, cannot afford formal rent, and finds a foothold in an informal settlement. The settlement grows, but no one invests in upgrading it because tenure is uncertain. The lack of services keeps families poor, which keeps them dependent on the informal economy and informal housing.

Breaking this cycle requires action on all three fronts. Rural investment can reduce the desperation that drives distress migration without trying to halt urbanisation itself. Land policy reform, including higher floor area ratios, faster approvals, rental housing for migrants, and the release of underused public land, can expand affordable supply. Tenure recognition, whether through full titles, long-term leases, or protection from eviction, can unlock investment by both residents and the state. Cities that have made progress, such as Ahmedabad’s Slum Networking Programme or Pune’s incremental upgrading efforts, have generally moved on more than one front at a time.

What do you think? If you had to choose between investing in rural livelihoods to slow migration or expanding affordable urban housing to absorb it, which would you prioritise for your state, and why? And do you think granting legal tenure to existing slum residents would solve more problems than it creates, or open up new ones?

References

1. https://compass.rauias.com/current-affairs/slums-india/
2. https://www.downtoearth.org.in/urbanisation/informal-and-unplanned-urbanisation-welcome-to-the-new-urban-india-95919
3. https://pmc.ncbi.nlm.nih.gov/articles/PMC6445429/
4. https://polsci.institute/india-democracy-development/migration-over-urbanisation-challenges-policy-india/
5. https://mohua.gov.in/cms/Pradhan-Mantri-Awas-Yojana.php
6. https://www.breakingthethermometer.com/challenges-of-unplanned-urban-growth-and-informal-settlements-in-india/
7. https://www.cornellpolicyreview.com/land-tenure-security-for-urban-poor-in-india-a-systems-thinking-approach/
8. https://www.tandfonline.com/doi/full/10.1080/19463138.2022.2054815