Abstract: The object of this research is the informal settlements in Addis Ababa. Despite the differences in residential sectors in various countries and regions, the common reality of cities in the developing countries became demand for residential real estate, which virtually led to economic barrier for acquisition quality residence for the majority of population with low or medium income. Similar to other cities in the developing world, Addis Ababa – the capital of Ethiopia, was not capable of ensuring due residences within the framework of formal, planned urban structures. However, diverse measures taken for the solution of issues of informal settlements, could not reach the desired result. Thus, the author examines the informal settlements as one of the aspects of sustainable development and partial solution rather than a problem in the developing countries. The article presents a historical review of the system of land use, analyzes the factors affecting the expansion of informal settlements, and explores the typologies of residential architecture in such settlements of Addis Ababa. In the course of the research were analyzed and summarized the documents and proclamations on the policy of urban development and management of land resources, as well as the comparison of the Russian experience of development of informal settlements. The author’s contribution consists in determination of factors affecting the expansion of informal settlements along with typology of architecture of a residential building in such settlements of Addis Ababa. The conclusion lies in the statement that the principles of vernacular architecture are important in development of informal settlements for sustainable development of the city.