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Data for two different types of low–income bousing (sub–systems) are presented for Mexico City and are compared to highlight the differences between shantytowns (ciudades perdidas) and squatter settlements (colonias paracaidistas). Shantytowns are largely rental and are distributed in the inner–city and intermediate ring. They show little evidence or potential for physical improvement. Squatter settlements are invariably peripheral and, once ocupance is assured, they are upgraded through government intervention and auto–construction on the part of the squatters. Planning policies must recognise the differences between the two sub–systems so that the treatment of each reflects their respective attributes and potential for improvement.