In recent debates, it has been argued that urban informality is a way of living. It is the consequence of people negotiating with building regulations, limited resources and their living environments. However, as some researchers have pointed out before, informality is not just the experience of subalterns; in some cases, it has become the shared experience of people across different classes. This paper therefore employs processual thinking and materiality to demonstrate how urban informality was formed and has been transformed through negotiations between people, local authorities and political realities. By thinking about Taipei’s informality as a negotiating process, informality can thus be understood as the co-production process of squatters’ struggle for a living in the city and the state’s attempt to mobilize political support. As new construction materials have prompted varied illegal construction forms, attracting new people to build illegal constructions, the demographic change has also changed the people–state relations. The state’s governance of illegal construction therefore has been leaning towards private property owners with illegal add-ons, leaving squatter settlements vulnerable to demolition. In the case of Taipei’s transforming urban informality, this paper argues that informality is not merely the result of poverty, and should not be romanticized as a way to live outside the housing market or the modern planning regime. On the contrary, it should also be examined for its impacts on the existing class differences and inequality in urban populations.