Killing the Golden Goose

My opinion on one of the biggest costs in Japan financial bailout. After the Japan RE bubble burst in the late 80s, Japan government attempted to keep RE prices high to fight of loan defaults. Banks are allowed to accumulate easy profit from artificially low interest rates, and from postponing mark to market (sort of like what is happening in the US right now). And it succeeded in deflating the bubble slowly, over 20 years. Even now, RE prices are very high compared to income. For example, in Tokyo, a 2-bedroom condo about 600 sqft costs $400,000. The critical age for family formation is late 20s and early 30s. However, workers at that age have a monthly income of only about $2500 - $3500, which means that the price of such a condo is between 9.5 to 13 times income. Clearly, it is very difficult for young couple to purchase a condo in Japan, let alone a landed house. I believe that this ultimately accelerates the decline in fertility rate among Japanese women. Even if they want to marry, form a family, and have kids, they cannot afford the condo to house their young. Now the government attempts to encourage women to have children and are paying a few hundred bucks to them if they will. However, what is a few hundred bucks compared to $400,000? Hence the strategy has not been effective. It is just not economical to have children in Japan. In my opinion, shrinking labor force is the real price of keeping bubbles from deflating. While labor may shrink naturally as women postpone marriage age, I believe strongly that the steep decline in fertility rate is caused by unaffordable living cost. I predict this is what is going to happen in China. Housing is very hard to afford in cities vs. income. When bad loans go sour, government will bail out banks using taxes, inflation, low interest rates, etc. They will succeed in keeping house prices high, but there will be a huge cost. Because the household sector is penalized in order to bail out banks, they will suffer. The huge cost will be a negative incentive to form families that support future labor pool. Just as it was in Japan, this will accelerate the decline in labor pool, no matter what incentives government may give to young couples. Will similar things happen in the US? I believe so, but only partially. There are still a lot of states, towns, and cities, in which housing prices remain low, at 2-3X yearly income. One thing that lends support to my theory is some of my friends from Asia. They come from countries that are known to have very small family, yet living in the US they have a relatively large family. So family size is not a function of ethnicity or country of origin. Rather, it is a function of affordability of family formation.