That's what flood insurance is for. In a socialist democracy you'd be right, but in case of the USA, it seems more appropriate to require that homeowners get insurance.
I think in this case, you would actually require federal-government-decision insurance. The downstream residents very well might not have flooded had the federal government done nothing (of course we can agree that what they did was probably best). We should not pretend that another entity directly causing this shouldn't be held responsible, even if it was the right decision.