This paper investigates the state-sponsored low cost housing provided to previously disadvantaged communities in the City of Cape Town. The strain imposed on municipal services by informal densification of unofficial backyard shacks was found to create unintended public health risks. Four subsidized low-cost housing communities were selected within the City of Cape Town in this cross-sectional survey. Data was obtained from 1080 persons with a response rate of 100%. Illegal electrical connections to backyard shacks that are made of flimsy materials posed increased fire risks. A high proportion of main house owners did not pay for water but sold water to backyard dwellers. The design of state-subsidised houses and the unplanned housing in the backyard added enormous pressure on the existing municipal infrastructure and the environment. Municipal water and sewerage systems and solid waste disposal cannot cope with the increased population density and poor sanitation behaviour of the inhabitants of these settlements. The low-cost housing program in South Africa requires improved management and prudent policies to cope with the densification of state-funded low-cost housing settlements.