Once you've gotten big enough to solve the shielding problem, definitely. I suspect shielding is the main reason for the current altitude.
Just having lots and lots of mass for the periphery would help with that a great deal. Big ol' water tanks and such. They sort of double as armor for micrometeorite strikes too. If you go big, you have to store a lot of stuff somewhere, you might as well stash it where it provides useful shielding.
That said, building at roughly the ISS altitude and boosting it later isn't a showstopper. Drag should scale roughly on the cross section of the station, not on density. Assuming you're building in 3 dimensions, the square cube law works in your favor, and drag scales much more slowly than mass.