At the elbow bend of the Sumida, the river that flows through Tokyo's eastern flank, lies a neighborhood called "The Garden of a Hundred Flowers" where Sadamitsu Ishii lives with his wife and two teen-age sons.

Ishii, a history buff, says that in the days of the country's Samurai rulers the area was the haunt of some of Japan's most celebrated men of letters. It was also one of the city's flourishing entertainment districts where the warrior elite and rich townsmen thronged the teahouses to revel in the company of kimono-clad courtesan geishas.

Today, a little over a century later, the charm of that bygone era has vanished and Ishii's neighborhood is a warren of overcrowded, tawdry apartment blocks and ramshackle houses that may fit more the foreign visitor's image of a slum district in a large American city than the capital of this economic superpower of 117 million people.

According to a recent government survey, 38 percent of those polled expressed strong dissatisfaction with their accommodations and a larger number griped about the shoddy quality of construction and lack of space, sunlight and greenery.

Today, in a country where the overall quality of life is among the world's highest, the average family of four lives in only three rooms, covering an area of roughly 700 square feet, or about the size of an American efficiency.

The housing crunch has touched off an outcry among a growing number of Japanese who complain that the government has in the postwar period pursued policies that have pumped the country's rapidly accumulating wealth into the expansion and upgrading of industry at the expense of better homes.

Meanwhile, critics in the United States and Western Europe have charged that Japan has piled up devastating surpluses with its major trading partners while its leadership has allowed most Japanese to live in what even the Japanese now self-mockingly refer to as "rabbit hutches."

Japanese in the densely populated urban centers put up with housing conditions that are among the worst in the industrialized world.

"Viewed from the outside," said Ishii, 45, whose yearly income of $18,000 qualifies him as a member of Japan's burgeoning middle class, "Japan is an economic giant. But if you look at family budgets and housing conditions, many people are just getting by."

Like many Americans, the Japanese have scrimped and saved to pursue the postwar dream of owning their own homes. At only about 8 1/2 percent, commercial mortgage rates here are almost ridiculously low compared to those in the United States. But the dream has become an increasingly impossible one in the face of skyrocketing land and construction costs that have nearly quadrupled over the past decade.

In Tokyo, by most standards the world's most expensive city, buying a home remains an outrageously expensive proposition. A square foot of land in one of the city's bustling commercial districts may sell for $1,500 and a small, cheaply built home in the suburbs cost upward of $160,000, or nearly eight times the average worker's yearly earnings. A modest, Western-style home that approaches American suburban standards may carry a price tag of $750,000 or more.

In the face of strong and mounting trade complaints, editorials in the Japanese press have recently suggested that the government embark on a belated program to spend significantly more official funds to enhance housing and public recreational facilities.

In theory at least, this would help boost Japan's slumping domestic economy and relieve some of the pressure on exports as the major prop for business activity here. Hampered by huge budgetary deficits, however, Tokyo has committed itself to a new fiscal austerity drive and has resisted pressure to expand government-sponsored housing subsidies.

In 1981, a decline in workers' real incomes and escalating construction costs resulted in only 1.2 million new housing starts, the lowest in nearly 15 years. Naoki Nagao, an executive at Toku Real Estate Co., illustrated the dour outlook in the industry here by pointing to the 20,000 newly built condominium apartments in Tokyo alone which are now vacant, he said, largely because no one can afford to buy them.

In Japan, a string of volcanic islands with a land area roughly the combined size of Virginia and the Carolinas, living space has always been tight because of the rugged mountains and rocky terrain that make only about a quarter of the country fit for human habitation.

In recent years, the government has stepped in to free more land for residential use in such swarming cities as Tokyo by rezoning urban areas to encourage the relocation of factories and farm plots beyond city limits. These efforts have met with only limited success, however, because, Nagao explained, "landowners don't want to sell their property when they think the value will only climb in the future."

Another recent survey indicates that nearly two-thirds of all Japanese households now own their homes. But as the costs have soared, many younger Japanese have given up on putting money aside to buy homes. Instead, they have begun to fritter away an increasingly larger portion of the country's traditionally high rate of savings on clothes, cars, entertainment and travel.

Step into Ishii's manshon, or "mansion", as the Japanese euphemistically refer to the typical steel-and-concrete apartment building here, and you will find three tiny, pin-neat rooms, covering an area 18 feet by 18 feet.

In an alcove near the entrance is a narrow kitchen counter with a two-burner hotplate where Mrs. Ishii does the cooking for her family of four. There is a color television, a miniature washing machine and refrigerator and a host of other high-quality Japanese consumer gadgets crammed into the apartment that gives it the appearance of cramped living quarters on a space station.

There is no central heating or air conditioning and no closet space to speak of. Now that her two teen-age sons are getting bigger, Mrs. Ishii said, "I get the feeling that we're constantly bumping into each other."

Mr. Ishii, who rents the apartment for a little over $300 a month, said, "We've already given up on owning our own home. Even if we could buy a new condominium it would cost at least $100,000 and we'd only have one more room. Who wants to buy a hunk of concrete anyway?"

Ishii considers himself lucky, though, because it takes him only five minutes to walk to work, an almost unheard-of luxury in a city where the average one-way commuting time on the highly efficient train and subway lines that criscross Tokyo is more than an hour.

Last year, Takashi Akino, 39, moved his family of four into a new $120,000, two-story house he had built in a booming bedroom community a 90-minute train ride from central Tokyo. Spacious by Japanese standards, the house has a floor space of 1,500 square feet with three small bedrooms upstairs, a living-dining area and a tatami-mat room downstairs and a tasteful, postage stamp-sized garden.

Yoko, Akino's wife, said, "Building a house was our biggest dream and we never thought we could afford it at our age." They were able to manage it, she said, because her husband, a bank employe, qualified for a nearly interest-free loan from his employer.

But the deal had its drawbacks. Shortly after their dream home was completed, Akino was transferred to a bank branch in a small town 4 1/2 hours away where he lives in a tiny company apartment. The family budget allows him to come home only one weekend a month because of the high train fare.

Now the Akinos dream of the day, maybe in a few years, when he will be reassigned to an area within daily commuting distance. "We had to think of the kids," Mrs. Akino said, "because it's not good for them to move around so much."

Domestic dilemmas like this one are common in Japan's increasingly mobile society, where the strong traditions of the family have begun to break down. While still modest by American standards, Japan has, for example, been rocked in recent years by an upsurge in juvenile delinquency and violence in the schools.

"These days," Ishii explained, "people are often driven beyond their means to strive for better housing and, in many cases, it's the kids who suffer," because some parents are forced to hold down jobs that keep them both out of the home a large part of the day. Like a growing number of their contemporaries, Ishii said, "we've decided we're not going to do that."