they knock down old social housing because
-it has reached the end of its useful life
-the council needs more property of different sizes, i.e. family sized property rather than studios or 1 bed flats
-they build homes that people will want
the private property element is because councils do not have the funding to build new council estates even if they are needed. the government does not easily give money to build so local authorities have to work with private developers to build flats that will be sold at a profit which will cover the cost of building new social housing.
it will also give mixed communities so that you don't get 'ghettoes' of the poor, disabled, unemployed, marginalised. a mixed estate will have a range of people who are 'invested' in the area.
the situation in tower hamlets is fraught because the borough is poor, despite being next to the 'city'. however, practically every london borough has huge lists of people with the same problems that need to be dealt with.
the housing manager, after years of experience, is probably a bit cynical when people come in for help as they often get snotty about the kind of accommodation they are offered after they have said that they are 'desperate'. people sometimes have homes elsewhere when they fetch up in tears at the housing office, so her apparent lack of empathy is understandable.
you need to work in housing to understand the lies that fall effortlessly from some people's mouths. the manager has to ensure that the right people get help, not the chancers.