In fiction, you can pretty much always create a reason, and if you have a reason, then that is valid.

That said, the point of using wetlands as a buffer is that the area is too polluted for long-term human exposure, so you might as well give it to nature. Wetlands do nothing to filter out most pollution, the pollution is either removed through industrial processes or slowly allowed to dissipate out into the ocean. As for how wide wetlands should be - right now that’s just the area with an above-acceptable chance of above-acceptable pollution for human habitation or workplace exposure. It depends on where the pollution flows to, how quickly it dissipates and in which ways, etc.

So allowing human habitation in those wetlands is missing the point that caused our capitalist society to restore wetlands there: liberal environmentalists demanded a quota for natural area, and the polluted land is worthless for other uses, so by making them wetlands you satisfy the environmentalists at minimum cost to capital. The animals and plants suffering from the effect of exposure to pollution is not your problem, as long as it still looks pretty enough for photo opportunities and as long as you fund biologists who Monitor the Situation.

Hating to lose things can come from a place of sunk cost fallacy. Reusing existing buildings is often less efficient than building from scratch, and the reason it is so often worth it in the present day is because capitalism is horribly inefficient at land use because land ownership is basically an untaxed way to leech money off the efforts of everyone around it.

However, in your scenario as presented, you’re dealing with a neighborhood built by capitalists in the expectation that the neighborhood would be dry land. It seems very unlikely that the capitalists that built it would have paid the extra money to make those buildings able to handle flooding well. This means rotting drywall and insulation, waterlogged concrete, rusting metal frames, essential household infrastructure like fuse boxes and central heating and sewage pumps being destroyed beyond repair in flooded basements, etc. Using these places in spite of that would likely mean either massive maintenance cost or massive health issues.

It is plausible that in a capitalist society a place like this would be used as a shanty town. In most places in the US, shanty towns are demolished by police because “ew, gross” and because they prefer to send the people that would use them to for-profit prisons. However, it would be on-brand for California to officially endorse the shanty town as a capitalist pseudo pro-housing waffle. Between the lack of functioning infrastructure, the toxic pollution, the building damage, and everything else, quality of life would be pretty bad, but many people may choose it over not having a roof over their heads or becoming a slave to the prison industrial complex or even over the quality/cost of available regular lower class housing in California.

In a solarpunk society, I find hard to imagine that living in rotting flooded housing would be preferable to deconstructing the neighborhood and building adequate housing elsewhere. Reuse is only good if the cost of reuse isn’t greater than the combined cost of disposal and replacement or salvaging and reuse in a different context.

Maybe it could work if most of the reconstruction efforts were done as a capitalist shanty town. Put one or more decades of capitalism after the flooding, enough that a rich amphibious local culture has arisen, the bulk of the reconstruction costs have already been borne, and pollution has diminished so it’s no longer an active health hazard in most of the town. It could be an incrementalist history, where the emphasis on capitalist incentives slowly diminishes over time and people go from living in the shanty town because of work and rent and shelter to living there because of the people and the land, or it could be a revolutionary history, where capitalist structures in the shanty town are finally removed or reclaimed.

With the first option, you would have to be careful to show that this isn’t just the first step of the same cycle of gentrification that has affected successful shanty towns since the dawn of time. Many fashionable capitalist consumer things are cleaned-up versions of poor people managing to survive and thrive 50-100 years earlier. What decisions does society make that show it turning away from the cycle of externalization, exploitation, and commodification?

With the second option, you would have to be careful to show which parts are capitalist and which are postcapitalist. When they use something that is only sensible because of initial capitalist investment, how is it clear that they wouldn’t build it that way today and what other choices they would make? What makes their lives worse than those of people from flooded towns who immediately got a solarpunk response, and why do they choose this place anyway?