Slum dwelling and housing poverty are not transitional phenomena. They often demonstrate significant resilience to government interventions and the overall economic development. The paper explores these challenges from the experience of Ecuador, based on the analysis of the qualitative data collected in a field study in Quito. The results point to a significant policy trap in the housing and lending schemes. Internal psychological barriers experienced by vulnerable communities also reduce the effectiveness of government programmes. The housing inequalities can also be linked to defective urban planning practices in the past, and the emerging trend of fragmentation. Based on the findings, it is recommended that successful solutions would be specifically targeted to the households in extreme poverty, and guided by the principles of participatory design, appreciating the needs of these communities. An effective approach would integrate the strategies on urban planning, infrastructure, public service provision and urban labour markets.