Indeed, but the hypothetical was "We have magical free energy, and magical free mass" to go along with that--- in space, you have literally infinite volume to expand into. Assuming the first two, the difficulties of the space habitat are not insurmountable, and any garbage you MIGHT create can be dealt with reasonably effectively by dropping it into a star, or into a gas giant.
Since the universe says "not only no, but HELL NO, and fuck you too!" about those two things, Indeed--- the Sahara is a much better option, if for no other reason that it is at least plausible.
Likewise with deep ocean habitats (which would be VERY similar to space habitats, but with better resource availability), and the like.
The "Conflict over space" thing is what causes habitat destruction in the first place. As far as we know, nothing lives in space that would be adversely affected by a human scrapheap floating in it. There are things that live in the Sahara, there are things that live on the ocean floor, etc. Any place humans decide they can expand to will put living pressure on a biosphere here on earth, since every square inch of it is habitat to some lifeform or another.
This was kinda the point I was making about Chernobyl; The radiation was literally "It will kill you with cancer if you try to live there" in the area just around the reactor at the time of the image I shared; Satellite imagery shows thick forests less than 1km away from ground zero of the disaster, and many people attest that these irradiated forests are home to a wide variety of wildlife. The radiation is less detrimental to the biosphere than human activity is. After they installed the new sarcophagus, the radiation levels are much more reasonable in the area, but the image was taken in 2007, and shows ADULT tree forest just a short distance from the site-- meaning the forest was growing just fine in the heavy radiation.