I can only guess that they did this with a script routine...as there is no other setting in RTW that would let you do that. Still, I have learned a couple interesting things from this 'conversation'. First off, I really don't care about population control all that much....that may sound mean, but hear me out. Any attempt we made in RS2 to put reigns on population grow that weren't 'player controlled' (and for the AI, that meant the population growth buildings, because the AI loves more population), resulted in population 'stripped' settlements. Not for the player of course, but for the AI. Whether you play 0 or 1 turn campaigns, the INHERENT love of the AI is more people. It is hard-coded into the game. Give them more people, they will make more armies. Give them less people, they will STILL make more armies and strip settlements of people....and if you play on Huge settings, it's even worse.
But, there may still be better ways to control squalor....although, to be honest, and historically speaking, squalor was always a problem in ancient large cities, unless great lengths were taken to build sewer systems, etc. It cost a vast amount of money and time, and few large cities ever did it very well.
Anyway, I'll have a look at what RTR did and try to think of ways to reduce squalor.