(FORTUNE Magazine) – COME WITH ME TO KIBERA: THE LARGEST SHANTYTOWN in sub-Saharan Africa. More than 500,000 people live in this vast illegal section of Nairobi, in mud huts on mud streets, with no fresh water or sanitation. Walk down Kibera's sodden pathways and you'll see a great deal of hunger, poverty, and disease. But you'll also find health clinics, beauty salons, grocery stores, bars, restaurants, tailors, clothiers, churches, and schools. In the midst of squalor and open sewage, business is booming.

Indeed, Kibera's underground economy is so vibrant that it has produced its own squatter millionaire, someone I have known for years. From his start a generation ago selling cigarettes and biscuits from the window of his hut, this Kenyan (he asked to remain unnamed) has assembled an empire that includes pharmacies, groceries, bars, beverage-distribution outlets, transportation and manufacturing firms, and even real estate.

Families flock to Kibera for the same reason country folk have always migrated to the city--in search of opportunity. In the city they can find work but not a place to live. So they build illegally on land they don't own. There are a billion squatters in the world today, almost one in six people on the planet. And their numbers are on the rise. Current projections are that by 2030 there will be two billion squatters, and by 2050, three billion, better than one in three people on the planet.

In itself, this is nothing to worry about, for squatting has long had a positive role in urban development. Many urban neighborhoods in Europe and North America began as squatter outposts. London and Paris boasted huge swaths of mud-and-stick homes, even during the glory years of the British and French monarchies. Squatters were a significant force in most U.S. cities too. It would no doubt surprise residents paying millions for co-op apartments on Manhattan's Upper East and West Sides to know that squatters occupied much of the turf under their buildings until the start of the 20th century.

Still, today's squatter cities are growing far more rapidly than those of yore. As many as 70 million people a year are migrating to cities. That's 130 people arriving every minute, and two every second. Where will all those people live? How can they find housing without denuding the land and destroying the environment? In the developing world that is a major issue.

Peruvian economist Hernando de Soto has proposed that governments should legalize this development by offering squatters the chance to buy title to the land they're on. That would bring them into the economy (as property owners, ex-squatters might be able to qualify for mortgages, for instance) and add to the rolls of taxpayers. But while the idea may sound good (and would doubtless provide long-term employment for the lawyers and surveyors needed to untangle the land-use patterns in these primitive communities), it may not benefit squatters. Many would have to go into hock to purchase their land and could be forced to sell at a discount to make good on the debt.

From the two years I spent living in four of the world's squatter communities (in Brazil, India, Kenya, and Turkey), I've found that squatters need two far simpler conditions to enable their communities to grow. The first is what the U.N. calls "security of tenure"--confidence that they will not be arbitrarily evicted. The second is access to politics--some way to participate in the larger city.

Take Sultanbeyli in Istanbul. Migrants from the eastern provinces of Turkey began colonizing undeveloped land on the city's east, or Asian, side in the 1970s. The first wave lived in hovels. They pirated electricity and survived without water and sewers.

But squatters in Turkey have rights. Build overnight without being caught and you cannot be evicted before you've had your day in court. In Turkish, squatter communities are called gecekondu, meaning "it happened at night." If the land you occupy is disused or neglected, chances are you won't be challenged at all. And whenever one of these night towns reaches a population of 2,000, it can apply for recognition as a municipality, which gives the residents a chance at self-government.

Today Yahya Karakaya, Sultanbeyli's popularly elected mayor, sits in his air-conditioned office on the top floor of the seven-story squatter city hall and presides over an amazing squatter establishment: a planning department, a department of public works, a sanitation department, and a municipal bus service. This squatter city of 300,000 people has stores, offices, restaurants, banks, Internet cafés, and a post office in its bustling downtown. Almost every home has access to legal electricity, water, and sewers. The community is exploring ways to compensate claimants who held earlier rights to its land. And it has even created rules to rein in its own growth, thus protecting adjacent forests that are crucial to Istanbul's water supply. Sultanbeyli has done all this without title deeds.

As in Sultanbeyli, so in the rest of the world. No developer can build at prices the squatters can afford--that's the very reason they build for themselves. But over time, with a bit of legal protection and the chance to engage in politics, what they will build are the cities of tomorrow.

ROBERT NEUWIRTH is author of Shadow Cities: A Billion Squatters, A New Urban World (Routledge, 2005).

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