On the other hand, http://en.wikipedia.org/wiki/Haussmann%27s_renovation_of_Par...
Moreover the simpler solution would be to build up. The article just dismisses that in one sentence saying "nobody wants" it, but do people want entire new microblocks built in the middle of streets?
Plus, narrowing streets would come at a significant cost to the city to reconfigure the roads and infrastructure. Not only tearing up sidewalks and paving new roads, but also burying all the wires on those telephone poles and lord knows whether the gas and sewer lines under the street could support construction on top of them (and how would you service them after?). We'd also lose/downsize trees. On the other hand, building taller is entirely privately funded and quite economical in comparison.