There is plenty of available space around it despite claims how the old city fell into the sea.
I'm not after something the size of it's former glory as that would be bigger than solitude. Something the size of a town like Helgen on the spot would be fine. Even turning the area into a large stronghold like Battlehorn Castle would be good.
Whatever they do it needs to be stone built like the Mages Guild and it needs a good shop and a good blacksmiths. Most mage related stuff can be bought at the Guild.
Winterhold is like the new Kvatch. For anyone still playing Oblivion then Kvatch still takes up space on the map with no use unless being on pc and having mods. It's not even worth visiting for a bandit hunt.
Hopefully Beth will listen to requests this time around.