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I've been asking that for years. We absolutely shouldn't. It encourages folks to build in places they shouldn't (often rich people, since who else can afford beach-front property).

Well, part of the reason is related to what I described above. Regulation of land use and development patterns is almost entirely done at the local level - city and county, mostly, with little involvement at the federal level. When the National Flood Insurance Program was implemented back in 1968, it was intended to be the carrot to induce local governments to be more responsible in planning development - in order to qualify for subsidized flood insurance, local governments had to adopt floodplain regulations. The notion was that the feds would spend less money on disaster relief if local governments adopted some tighter regulations governing coastal development.

All of this is necessitated, in part, by the fact that most major cities are coastal or on major navigable rivers (or both). For much of human history, water transport was the most efficient means of large scale transportation. And for much of human history, the dominant form of personal transit was walking. So most of our business and financial centers (and thus our cities) were near ports, and those ports had to become big population centers.

So - given that people were going to live in coastal areas anyway, the NFIP seemed like an efficient way of managing it. Whether the 'moral hazard' of inducing more people to move closer to the coast outweighs that is a huge debate.

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