I'm not sure about the US's national flood insurance, but for other things, it doesn't always enable stupidity. If there's private insurance companies involved

I'm not sure about the US's national flood insurance, but for other things, it doesn't always enable stupidity. If there's private insurance companies involved, they usually won't insure abject stupidity. Even government insurance has its limits. As an example, Hurricane Katrina hit the Gulf Coast back in 2005, and it was a total disaster. Flooding, of course, was not covered by private insurance (it's been like this for a very long time), only wind, so there was a lot of arguing over whether insurance companies had to cover losses because the storm surge was actually caused by wind, and a lot of damage was solely caused by the hurricane-force Category 5 winds. I'm probably leaving some important details out... Anyway, the aftermath was that private insurance companies in that area refused to insure wind damage to buildings. It just wasn't worth the risk. So the state (Mississippi) came up with something called the "wind pool" which was government-provided insurance for wind damage. The problem was, it was really expensive. So a lot of people never did rebuild, a lot of people left (or moved farther inland, where the insurance was cheaper), etc. The bottom line is that enabling stupidity as far as building location only works long-term if it's being subsidized. If insurance reflects the true risk of building in a certain place, then it really limits that kind of activity.