Well, I'm responding to UNY's scenario, where the $1 houses are crack dens, i.e. occupied. Those are the sort of neighbours I'm talking about.

If you can manage to start with a clean slate, occupant-wise, then what you suggest can be done. Up until a few years ago in the UK, tenants of social housing couldn't be evicted no matter how atrocious their behaviour, and there were cases where loutish families trashed entire neighbourhoods.  There was nothing, however, to stop councils knocking their own property down.  I do know of one gone-to-the-dogs street where a council applied (to itself) for permission to bulldoze the lot, rehoused all the tenants (the "problem families" going to the empty houses next door to other "problem families" elsewhere in the city) and then..."changed" its collective mind, did up all the houses and put in new tenants, turning a dangerous street into a sought-after one.

It worked. There are problems with it, obviously, insofar as somebody has to decide who are the deserving and undeserving poor. If it's applied solely to "families who have 200 other families living in fear of a brick though their window", then I think few would argue, but it's obviously a system open to prejudice and abuse.

(The other problem that tactic created (of concentrating social issues) no longer applies because councils are no longer required to house antisocial tenants, and such families are now simply evicted.  Where they go, I have no idea.  There were a couple of high profile evictions and the issue just slipped off the radar. )