Substandard and insecure housing conditions are recognized as a crucial aspect of urban poverty. In most large cities in the developing world, the formal market serves only a minority of the population. It is estimated that between 30 and 70% live in ‘irregular’ settlements and that up to 85% of the new housing stock is produced in an extra-legal manner, with severe social and environmental consequences. John Turner’s groundbreaking work and the first Habitat conference in Vancouver 1976 became markers of a paradigm shift towards an enabling and participatory approach to housing provision. However, little progress has been made in translating the new paradigm into practical and sustainable policies. Relocation schemes, social housing, slum upgrading, and sites and services are beset by two related problems: They are far too small-scale to serve the growing demand, and products are far too expensive to be affordable for low-income groups. Based on Pal Barossa’s argument, the paper states that the conventional sequence of Planning-Servicing-Building-Occupation is a key factor in both market and state failures. Each of these steps leads to a steep price increase and speculation, and in effect raw land is turned into a scarce and expensive commodity. In informal subdivisions the sequence is reversed. Housing and infrastructure are developed and improved incrementally, according to the needs and capacity of residents. To incorporate this logic into public policies is a promising approach to the alleviation of housing poverty. The paper introduces the Philippines’ ‘Community Mortgage Program’ and Hyderabad’s incremental development scheme ‘Khuda Ki Basti’ as best practices in this direction. Both programmes have effectively enhanced the supply of land and housing for low-income groups, albeit on a very different scale. Their replicability is a question of political will rather than a technical one. Vested interests in both formal and informal land markets are likely to put up stiff resistance against serious reforms in this sector.