The BBC has found people paying to live in shop storerooms, above car repair garages, on industrial estates and in former warehouses.
This shadow housing market is causing London Fire Brigade "grave concerns".
In the past nine months, firefighters have attended 36 fires in such places and two people have died.
Carlo moved to London from Spain four years ago in search of a better life for his two teenage daughters.
Now all three share a cramped room above a car repair shop on an industrial estate in north-west London.
They are 20 residents sharing eight rooms and a kitchen, while mechanics work on customers' vehicles below.
"I looked for a two-bedroom flat, but it's too expensive - the rent, the deposit. Now I live just in this room, little room, and I pay £433 every month - with no furniture," said Carlo.
His daughters, now aged 18 and 21, sleep in bunk beds in the same room. The only other furniture is a small fridge, and there is mould on the walls.
Tim Bolt, planning enforcement manager for Brent Council, told BBC Radio Four's Face The Facts programme that homes hidden away on industrial estates and within commercial property were an increasing problem.
For the past few years he and his team have been attempting to crack down on so-called "beds in sheds" and have issued more than 100 enforcement notices following investigations, which often begin with tip-offs from neighbours.
He says his job is getting harder: "One of the problems we've had in investigating this type of accommodation is that a lot of it has been hidden away.
"Unlike if it's in a predominately residential area, in industrial areas people are not interested in reporting it."
Mr Bolt says: "The people living in these places - factories and industrial units - are often vulnerable and quite a few them don't speak English or speak very broken English. They have difficulty finding work and they are often reliant on their landlords for work."
But it is not just migrant workers who find themselves having to endure what can be squalid living conditions.
For almost a year Erin, 24, lived on a houseboat on the Thames - paying £250 a month for a makeshift cabin aboard an old converted grain barge.
She came to London looking for work in the television industry, but the friend who offered a couch to sleep on moved.
"The boat is about 60ft [18m] long and basically has a house built on to it made out of scrap wood and metal. Some of the ceilings are even made out of old doors," she says.
It is one of three boats, moored together, which house up to 32 people.
Mains electricity is provided for just a few hours a day, thanks to a generator.
There is a camping shower, but hot water comes from boiling a kettle.
"At first I thought I'd take it on the chin - but then when it started raining a lot more and the weather got worse, the conditions got really unbearable. The walls leaked water, the carpet on the floor was wet for five months. It was so cold that you couldn't fall asleep and you could see your breath in your room," says Erin.
She says she suffered anxiety and depression as a result of her experience and, after months of saving, has now moved to a small flat-share.
Her former landlord says he has been working to improve conditions on the boats and was pleased the barges could offer people "shelter and get them on their feet out when they could afford little else".
In Hackney Wick, in the shadow of the Olympic Stadium, dozens of former factories and warehouses now house what is said to be the biggest creative community in Europe.
The residents are attracted by large spaces at relatively low rents.
Isobel, 27, lives in one former factory, which she shares with 11 others. Breeze-block walls divide the building into living spaces.
"It does feel like a warehouse but that's part of the attraction. You can take the space and do with it what you like - we've even built new rooms," she says.
Isobel says she has permission to live where she does, but Face The Facts has spoken to others who lived in buildings deemed to be for industrial use only but where landlords were creating other hidden homes.
"The building was so badly maintained because there was always that excuse, 'Oh you're not supposed to be living there,'" says Alex.
He says: "There were a lot of rats in the building. One day these rats just started dying in the walls and in the pipes because of the poison, and there was this horrible smell in our bathroom. And then eventually there was this trail of blood that came down the wall and it was it was really really grim. We went to the caretaker and he was just like, 'What do you want me to do about it?'"
The owner of the building told the BBC he would evict anyone he found living there and the LFB are now happy with the fire-safety precautions taken.
Housing Minister Kris Hopkins said the government had made £6m available to local authorities to "root out the cowboys" and 950 illegal and overcrowded commercial properties had been uncovered as a result.
But Rita Dexter, deputy commissioner of the LFB, does not believe the problem will go away in the near future.
She says: "Fundamentally there are many many people looking for places to live in London and it doesn't seem to me that that will diminish in the short term. We are very concerned about what is next in terms of what people will design as places for people to live.
"Ingenuity is one word for it. In our organisation we call it risk."
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