You are right, but I think this sentence is instead asking about a place where they live. A question about living in a residence would be something like, 'do you live in a house or in an apartment?' Then, I would think abitare would be used. Perhaps I am right on this, but not 100% sure ..
Almost right but not. Because 'vivo' and 'habito' are not always synonyms. it depends on what is been said. 'io vivo' can also mean (I'am alive). so, if you say : 'Io vivo per sempre' = (I live forever) but you can not say 'Io habito per sempre' to mean that. Just like in English if you say 'I live in Italy' and 'I live forever' the word 'live' will be having a different functionality. BUT THAT doesn't happen with the word 'abito' which always require a place a 'habitat'.
My understanding of the other sentences we've had using the two verbs is that "vivere" means "to live through" or "to survive" - which means it really shouldn't be used here for "Where do they live?" but does work for "HOW do they live (survive, make a living)?" - rather "abitare" which means "to dwell or inhabit" - I have reported it, but we'll see if the admins fix it or have a different explanation for us.