The paper examines the social production processes and the transformations of the alleyway houses of shanghai, especially the production of suburban housing for the urban elites after the 1920s, Through an analysis of the concentrated development of suburban residential housing, this study seeks to understand the relationships among state intervention, social group differentiation and the patterns of clustered residential development. It is argued that the urban policies of the Municipal Council, under the influence of the colonial logic of capital accumulation, structurally prompted the construction of roads in areas outside of the Foreign Settlement to relieve the pressure of capital which was intensively seeking opportunities for urban development inside the Settlement. The deployment of capital to suburban areas that were not under the control of foreigners had a number of consequences. The infrastructures and collective consumptions provided or advanced by colonial powers not only lowered the threshold for living in extra-Settlement areas but also helped establish the elitist image of suburban living and the formation of suburban place identity characterized by the presence of Western-style housing with modern amenities in a clean and comfortable environment. Such space consumption by the urban elites and middle class played an important role in the formation of the suburban landscapes of colonial Shanghai. The differential dwelling forms between the inner city and the suburbs reflected the esthetical representation for social grouping. And as cultural spaces, suburban houses and the actual milieu of some specific urban districts were a consequence of cultural competitions and social differentiation. Therefore, suburban housing manifested the great transformation of urban dwellings towards social distinction. Between some gentrified districts and the shanty villages. Both formed by state intervention and noninterference, the fragmented suburbs of Shanghai witnessed the constant contradiction of the capitalist society.