Subsidizing Poor Building Decisions

As we again see the catastrophic consequence of developing flood plains into cities and villages, the question should arise - should the government be subsidizing this type of development? Granted, to some degree this is a special case - New Orleans wasn't constructed in the modern era, and greater public expense can be justified in relation to historic towns and villages. But why are we spending billions of dollars in an effort to transform flood plains into buildable lots? Why are we spending billions providing subsidized insurance - or with the government stepping in to provide insurance for buildings which are otherwise completely uninsurable - rather than letting market forces prevail?

Would it be wrong to declare, in relation to properties destroyed in this catastrophe, that property owners will be able to collect on their insurance policies, but if they choose to rebuild in their present location they won't be eligible for future insurance subsidies? To follow the model started under the Clinton Administration, by moving people out of areas particularly vulnerable to flooding? Or even to offer a relocation subsidy (particularly to people too poor to otherwise move out of inexpensive properties situated on flood plains) to encourage people to move to less vulnerable areas?

Would it be politically impossible, given that better public policy would impede the ability of the wealthy to get subsidized insurance for their coastal vacation properties?