Housing for displaced residents: an opportunity to rebuild inner cities?

There seems to be a good bit of discussion regarding rebuilding New Orleans, and a fairly unrelated track regarding rebuilding housing for displaced residents throughout the Gulf region. (See for example http://www.nytimes.com/2005/09/13/national/nationalspecial/13build.html) Acres of closely-spaced mobile homes are being put up more or less in the middle of nowhere. Of course these efforts are moving slowly.

My question is, could arguments be made for using those funds instead for large-scale salvage and rebuilding of degraded inner cities, where at least infrastructure (salvageable buildings, utilities and sewer access, access to public transportation) is already in place? It seems on the positive side that this alternative would be less expensive and would put less pressure on the environment, since fewer natural resources would be required, and less new land conversion would occur. And, there appear to be many dislocated residents who do not want to return. Many of these residents may prefer to relocate to an urban setting with historical character and access to urban amenities and opportunities.

The obvious counter arguments are that such a strategies may only perpetuate the segregation by race and income that characterized many of the areas where residents' home were destroyed. As well, if such urban renewal efforts have failed in the past, why would we expect them to succeed now? There is also the problem of employment prospects for newly relocated residents.

However, could arguments be made that with such a large influx of new residents, money, and perhaps willingness by firms to commit to large-scale employment projects, that there may be a unique historical opportunity to reclaim degraded, but still intact, inner city infrastructure? With low interest rates, perhaps such efforts could be combined with programs to increase rates of home ownership.

The money is going to be spent, and it will be a lot of money. The housing will be built. The fact that things are likely to move slowly creates an opportunity to at least engage in some discussion, and put creative ideas forward.

Please share your thoughts, support, criticisms, alternative ideas. I am not a planner, but from the perspective of land-use change modeling, this is a potentially huge event, and perhaps an unprecedented opportunity (especially for the US) to talk about options.

Dawn