Check this thread: squalor investigation

Squalor increases with population. The only buildings that directly impact squalor are the city govt/town hall upgrade levels (as you can see in the population chart.) Other buildings like public baths and sewers do not impact squalor, although they do give a public order bonus (which is useful.) This is contrary to what the in game help suggests.

Why roads, improved walls, public health buildings and the like don't reduce squalor is beyond me.