In reconstruction projects after a great disaster, a leading, central role of the government is crucial. When the aim is building up a sustainable city, it is crucial that the project is led by the government and followed by inhabitants’ actions. In these follow up actions inhabitants play a leading, central role, for example through community development led by inhabitants. The inhabitants of the area hit by the Great Eastern Japan Earthquake in 2011 do not consider that such series of actions took place, according to interviews held with them. In this study, the author will identify the cause of the community development led by inhabitants to stagnate. The author is taking a fishermen settlement, heavily hit by the Great East Japan Earthquake in 2011, “Taro village, Miyako city, Iwate prefecture, Japan” as an example. Further, the author will point out how the views and attitude of the Japanese government towards reconstruction and the Japanese reconstruction system result in this stagnation. Finally, the author will propose a method of forming a sustainable city through community development led by inhabitants, following the reconstruction led by the Japanese government.