While Caulker looked promising after last season, and would be able to challenge for a starting CB spot, he wanted to be a constant starter, and so he was sold to Cardiff. Vlad Chiriches was signed as a replacement, and was good before getting injured. While a CB is definitely needed, Caulker isn't good enough to start for us now, and there are other options with higher potential and better value.
First, let's look at Caulker's strengths. He's great in the air (5 goals this season), is strong, and avoids injury (has played every league game for Cardiff this season). However, while not quite Dawson-level, his speed is poor. He also is weak on the ball, and prone to giveaways when pressed. He doesn't have good on-field awareness, and has lapses in concentration that can cost games. It's no secret that Cardiff's defense has been awful this season, and Caulker's been at the heart of it. In 32 league games, they've let in 61 goals, for a 1.90 goal/game average (2nd worst in the league). For someone who is supposedly so highly rated, it says something that he wasn't pursued by a team above Cardiff's level. Spurs can find someone better than a starting CB at a relegation-level club.
While Spurs should definitely get a young CB this summer, there are simply better options in the market. There are players who are already better than Caulker (Papadopoulos, Inigo Martinez, Ginter, Musacchio), at a similar price or less. There are also ones that are better long-term buys (Schar, de Vrij, Umtiti, Doria, Dier), who are more versatile and have higher upsides.
I honestly believe that if Steven wasn't a Spurs academy graduate, then there wouldn't be such a clamor to bring him back. Ignoring a plethora of options to bring back a player who clearly didn't want to fight for his chance here would be foolish. I hope Levy agrees.