Pakistan is experiencing an unprecedented urban housing crisis. Low-rise, low-income urban settlements are rapidly and informally becoming high-rise, high-density informal settlements, with all the physical, social, and environmental problems of unplanned densification. Meanwhile, speculative low-density elite housing is encroaching on the ecological assets of the city. This working paper explores the factors that have led to this crisis – and also what policy actions can be taken to help mitigate it, such as passing legislation to acquire land for low-income settlements, suppressing land speculation, and prescribing minimum density for all settlements. Providing affordable credit and house improvement loans for informal settlements will also be crucial, as well as advice on how to use those loans effectively. Appropriate housing standards are also needed so that design and technical advice is available to those involved in the informal and formal densification process, while also establishing criteria for judging the merits of new housing projects. Finally, more research is needed to better understand the processes, actors, and dynamics of the evolving informal densification process.