It's always humorous to see HN users praising the lifestyle of dense, walkable European cities. They don't realize how miserable it is to raise multiple children in the typical 2 bedroom / 1 bath flat that most locals can afford. It's not surprising that many couples have only one child.
Historically, homes in the US were very small, far smaller than what you see today. Americans have a huge misconception about this, because the historic homes they see today are the ones that survived, and the ones that rich people lived in 100+ years ago. The homes that regular people lived in have all been torn down, because they were small and unremarkable. But you can see some of this if you visit neighborhoods built in the 1950s: the houses there are much smaller than newer nearby homes.
However, despite a trend towards much larger homes in the US over the last 50+ years, Americans (at least the ones who can afford nicer homes) have been having far fewer children. So apparently Americans preferred having lots of kids back when they lived in homes with less than ~900 square feet.
As for Europe, Europeans have been living in dense, walkable areas with small homes for millennia, and didn't have any trouble raising lots of kids in that environment all that time.
They certainly did have kids in cities: you think people living in European cities in the 1700s or 1800s somehow all managed to stay childfree? They didn't have birth control back then, nor did they have transportation allowing them to commute.
They had much less children than the people outside cities, and the absolute majority of people was not living in cities then. Many of those working in cities had their families outside the city.
Yes, people's expectations around living space and privacy have inflated. What's your point? It's not as if Americans or Europeans are suddenly going to go back to tolerating having a bunch of kids in a cramped urban flat. And it was never "preferred". They mostly only ever did that in the first place due to religion and lack of birth control.
My point is that small living spaces aren't the reason Europeans aren't having kids. Middle-class Americans aren't having kids either, even though they live in suburbs with oversized houses that they're spending all their income on.
The number of children per family is absolutely higher in suburbs than in dense cities. So your point is at least partly wrong, although there are likely other causative factors as well.