In New Orleans, public housing doesn’t mean bleak high-rise towers. The city has thousands of units with Georgian brickwork and lacy ironwork porches that came through Hurricane Katrina barely scathed. Yet the U.S. Department of Housing and Urban Development, or HUD, recently approved $31 million worth of contracts to demolish 4,500 public housing units of such high quality that some are on the National Register of Historic Places.

The demolitions, scheduled to start as soon as December 15, come as the city faces an unprecedented shortage of rental housing. To add insult to injury, the Federal Emergency Management Agency announced last week that it would evict hundreds of residents of emergency trailer parks in New Orleans over the next six months, even though they don’t have houses to return to.

This is an unnecessarily painful mess in which bureaucratic bull-headedness and ideology have trumped common sense. I am not nostalgic for vast housing tracts that replaced old blight with new and became dumping grounds for the poorest of the poor. These doomed buildings, on four huge sites, have potential.

New Orleans tracts have been among the worst managed, suffering most of their damage from neglect by the Housing Authority of New Orleans. HUD took over the local agency and had determined before the storm to evict residents and demolish thousands of units.

Low-income housing advocates were not the only defenders of these projects. Sturdily built and sensitive to local history, the tracts always had the potential to lose their “project” stigma and join the rest of the city as an invigorating mixed-income neighborhood

These aren’t forbidding tower fortresses but appealing, three-story garden apartments. Most were built in the 1930s and 1940s, when subsidized rental housing was deemed a worthy endeavor and sheltered working families.

What’s possible can be seen at River Gardens, a mixed-income community developed by locally based HRI Properties. It replaced the St. Thomas public-housing project a few years ago.

Five buildings surviving from the old development have just been turned into 37 units of affordable housing. The $9.4 million project was partly financed by tax credits that encourage the preservation of historically important buildings. The overhaul was completed in just 11 months.

On a recent visit, the handsome warm-toned brick had been repointed and painters were putting finishing touches on beautiful wrought-iron galleries. The apartments face generous gardens shaded by monumental live oaks.

The rest of the project was replaced with far less sturdy houses of conventional construction. Though a variety of passable facades in traditional styles line quiet new streets, the sides and backs are unappealing and almost windowless, looking out on car parking.

HUD and the local housing authority have steadfastly resisted revamping thousands of units on four other public housing sites, preferring to bid them out for new construction of mixed-income developments that will take years to build and house a fraction of the neediest.

Washington policy makers see homeowners as the only class of residents who deserve aid. So billions have been poured into financing to stretch inadequate insurance payouts, like “soft” second mortgages that become grants. And these programs have worked. Neighborhoods of mostly owner-occupants are swarming with contractors completing repairs.

Renters — about half the households in New Orleans — have been left to fend for themselves. Before the storm, many landlords could make a profit renting out aging ranch houses or Creole cottages at modest rates. Few were subsidized, most served people of modest income and many are remarkable works of historic architecture that could catalyze more growth if fixed up.

Little aid is now planned for either small landlords or their tenants. In Senate testimony earlier this fall, Orlando Cabrera, HUD’s assistant secretary for public and Indian housing, had nothing to say about what should be done to repair the 112,000 rental units seriously damaged throughout the Gulf Coast in the storms of 2005.

This policy vacuum has left thousands of residents stranded because they’re priced out of the market, while jobs normally filled by people at the lower end of the wage scale go begging. The problem is so vast that it’s widely seen as impeding the city’s recovery. A tent city in a park next to City Hall is a daily reminder of the mess.

What works on the rental side is well known: a combination of incentives to encourage reconstruction and subsidies to help families afford them. Successful urban rental developments mix incomes and employ high-quality, non-stigmatizing design.

As the subprime mortgage mess amply demonstrates, owning isn’t a panacea for wealth-building or urban revitalization. While officials dither and blather, block after block of salvageable housing will be bulldozed or disappear behind rapidly growing weeds.

Mr. Russell is Bloomberg’s U.S. architecture critic.