There should be a mod that allows you to, like, if you have church/mosque, set a certain amount of money each turn to feed the poor and reduce squalor in your city. If you give your city too much money to feed the poor, your economy is going to suffer eventually because of unemployment (people stop working because they get free food anyway.) This will best be shown by lowering the income, not putting an extra icon symblizing "laziness" or whatever.
An efficient administrator (the player, that is) can balance the amount of money given each turn so that squalor keeps low without affecting the economy. Suddenly raising the amount of money to be given each turn by a lot is going to cause the city's economy to stagnate - suddenly lowering it by a lot will cause temporary unrest and possibly a revolt.
Giving some amount of money to the poor will in time give your governor a trait that gives him +1 Piety and +1 Chivalry (or possibly adding some kind of monk to his retinue that adds the same stats bonus). Overdoing it for some time will give him a tax income penalty trait. (It will also worsen his standing with the nobles, if this is possible.) Giving tons of money to feed the poor will also cause the nobles to revolt, eventually.
Oh, and, a revolt from too high squalor should consist of a peasant rabble army, and defeating said army should give some kind of dread +1 trait, or worsen your relationship with the papacy or something, but also remove most of the squalor in town for some time ahead. A noble revolt should consist of difficult units.
There should also be a "exterminate the poor" button or something in the UI. Doing this should cause some papal anger and unrest for some time, in addition to adding +2 or so dread. Squalor should also grow back to its previous level within 5-10 years or so after doing this.
I think this would add a new dimension of gameplay.
Right now, there's only one way to solve squalor - letting your city revolt, go back in and exterminate them. It's so annoying.
Hey, come on. At least tell me if you think it's a bad idea...