The catch-22 is that concentration of poverty is both undesirable and necessary.
Being from Vancouver, I understand vividly the problems associated with allowing those with addiction and mental health issues to concentrate - problems that I believe are bad for those individuals as well as the larger society. I think that if you surround yourself with like-minded people, it is easier to stay in that frame of mind. So I think that spreading out shelters would be ideal. Let people see what a more typical life is like with fewer hustlers and opportunities to use.
However, access to facilities and services is exactly the same problem from the opposite side. Congregation is the only answer due to lack of funding and, frankly, required efficiency. The built form of Toronto doesn't allow for a diffusion to happen because outside of downtown there are very few areas in which the disadvantaged could live close to the services that they need in sufficient numbers to justify those services. So it has to be downtown.
I don't see a way out of this dilemma, so the focus has to be on how to attain economy of scale and access to services while balancing the needs of the disadvantaged and the larger society. Obviously, this is what the Regent Park redevelopment does, but it seems only to add in more affluence and expect amelioration. I think this approach works, but only up to a certain point.
In any event, I can't see why anyone - let alone poverty activists - would truly want entire neighbourhoods full of those with mental health and addiction problems. But that seems to be the only way out in the face of lack of investment. The only other option they see is Yuppies moving in to displace them, so they are gearing up for a fight. And I have sympathy when we all know that the redevelopments are improving things for those already there, but do nothing for those that will come in the future (an approach mirrored, by the way, in almost every domain - from pension reform to union wages).
Oh, and as an aside for the ksun's who don't think that we should spend the money: aside from basic human decency and compassion, there is plenty of evidence to suggest an economic case for social assistance. We actually spend more money trying to serve people who are constantly on the edge with hospital, police and other agencies costing huge dollars. If you put the money into housing, assistance and treatment, it actually costs far less than the current approach (which is one of the reasons why Vancouver implemented the harm reduction approach). I get that conservatives don't like "wasting" money on "loafers" and those that can "pull themselves up by their own bootstraps", but if someone has welfare they don't need to steal to get a meal. They are more likely to feel safe and thus for their mental health to improve. Conservatives say that it provides an incentive not to work, and this may be true for a marginal percentage of people, but having a safety net is the mark of a decent society, and the tough love of letting people fall through the cracks just to whip up motivation of welfare arbitrage seekers isn't worth it - morally or economically (the best countries in the world are invariably those with the most generous social safety net - Sweden, Finland, Denmark, the Netherlands, etc.). Ultimately, this is a net benefit to society.