Yes, I agree that in general you shouldn't build in an area that's at risk for flooding. But if you've ever taken a drive through some of those Colorado canyons, such as the Big Thompson, I think you would understand why people want have a home there. Also, there are a lot of places where building outside a flood plain isn't even an option. That's true of most of the state of Louisiana, for example. The only thing to be done is to build flood tolerant structures elevated on pilings.
Another thing to consider is the impact of dam failure. In the case of the 1976 Big Thompson flood, a dam failure sent a thirty foot tall wall of water down the narrow canyon, killing 143 people. A dam failure was also responsible for the Johnstown, PA flood of 1889 which killed over 2000 people. In 1928, failure of the St. Francis Dam above Los Angeles killed 600 people. It sounds like there were a few minor dam failures in Colorado, but they weren't directly responsible for most of the flooding. Regardless, people have a reasonable expectation that the dams above them are safe and won't fail.
Cities are built where they are for (usually) good reasons. It's hardly surprising that the cities in Colorado are built on the rivers along the front range. Water was a necessity, and early development was driven by mining activity in the Rockies. New Orleans was built at the mouth of the Mississippi for the simple reason that you can't NOT have a port at the mouth of the nation's largest river. Johnstown is another city that was built where it was for very good reasons.
Now there are plenty of places in flood plains where building makes no sense at all. But the general trend is to discourage new construction and rebuilding in those areas. It's much tougher and more expensive to get flood insurance in flood-prone areas than it was thirty years ago.
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