Shantytowns are not a sign of failure peculiar to poor countries. They are a normal stage in how cities grow. Today's wealthy districts in New York, Paris and London were once crowded with makeshift shacks and the semi-homeless.
With no official deeds, people buy and sell the right to occupy a spot directly from the previous occupant. The community treats these deals as valid whatever the law says. There are even real estate offices that specialize in selling titleless properties.
Where squatters must pay officials to be allowed to improve their homes, the bribe acts like a tax that can take as much as a third of the improvement's value. This discourages investment. In the one settlement where such squeezing was worst, housing barely improved in decades.
Better-off city dwellers look down on squatters while relying on them to raise their children, clean their homes, serve their meals and staff their factories. Because squatters are so many, potentially more than half of all city dwellers within a generation, their sheer numbers become a source of power that governments cannot ignore forever.
Squatters will pour their savings into building solid homes and lasting neighborhoods even without legal ownership, as long as they are confident they won't be evicted. The fear of eviction, not the lack of paperwork, is what holds improvement back. A shed can grow over the years into a modern shop with a home upstairs, entirely illegal and entirely normal.