IRL japan, everyone is either that or a wage slave that does nothing but work. Being in school is the best (most nostalgic) period of people's lives. Plus, you have room for people to grow, since they're still children, which allows for character development.
Japanese cities are densely packed like that, so, chances are, if you live in Japan, you live in a densely packed city.
I've seen a lot of "suburbs", where people might live in a small 2-story apartment building or a family home and then commute to school.