I just googled 'demolish habitats' and got 174 hits.
I then googled 'destroy habitats' and got over 18,000,000.
'Demolish' is just about possible, but it isn't a very natural collocation. 'Demolish' suggests systematic dismantling, such as when a building is deliberately demolished. In most situations where habitats are destroyed, this is an accidental result of another practice, such as deforestation for road-building. 'Destroy' is much more appropriate, and is a natural collocation.