In that regard, I have often found the Japanese exaggerating about the lack of inhabitable land in their country.
This is a pretty well quoted fact, hence my original comment. If you want to refute it, you're going to be refuting a lot of statisticians,books, etc. If you want to take on that mountain, so to speak, be my guest.

The statistic I read was that they live in only 30% of the land, not 18%, but who knows. Sure, you can build a house anywhere... I guess. Why some do, is beyond me.

Well, let's not overlook the fact that Okinawa brings up the average. Their lifestyle is much different from that of your average Tokyoite, as are the lives of many who live outside of major metropolitan areas.
Right, but does it really "bring the average up"? Maciamo (I think) recently posted statistics of the population dispersion throughout the country. Kantou has roughly 30% or so... which is a LOT in one area. Kansai has another big chunk, then some small chunks for the other cities. Okinawa and the rural areas are pretty small in the big picture. I would like to know what percentage of the country lives in a city <= 150,000 people.