Instead of adding power the pilot reduced flaps to 20 degrees which flattened the approach and we landed on the keys with no extra input of power.
Landed on the keys! Rather says it all doesn't it, does this pilot wear spurs as well by any chance?
Flaps on C172 are Fowler,
Slotted Fowler Flaps actually, or to be absolutely correct single slotted Fowler flaps
What your describing is a non standard event and not best practice, as is landing on the keys but for some pilots non standard events are part of their normal flying and you can read much more about them in AAIB bulletins or here on Pprune.
The most important thing on the latter stage of the approach is to fully stabilise the approach in that the speed should be on target, the aircraft should be on the correct glide path, on the centreline and correctly configured with landing flap(and trimmed). The stabilisation height should be a target but most GA pilots have never even heard of stabilisation height so its hardly surprising they dont make an attempt to stabilise the aircraft by the target height. We/I use 200 feet on our training aircraft and that also coincides with the obstructed runway solo go around decision height.
Lifting flap at 400-500 feet is not much different to selecting flaps full in terms of stabilisation, both are de stabilising but thats not really the point, the point is whatever you have done to destabilise the aircraft on the approach should have it affects negated by the stabilisation height.
As has already been mentioned should an abnormal or emergency event occur on final the decision to lift flap may be the best decision on the day and shouldn't be overshadowed by folklore. This however wasn't an abnormal or emergency event and neither was it best practice in my opinion but Ive seen some very fine pilots roll an aircraft at 400 feet on finals but as I said earlier he eventually found his way into an AAIB bulletin and the local crematorium(from stall/spin at altitude in a twin I might add, not final!)
You also asked by the way, " is it safe"? I've yet to find anyone who can define what safe is. I teach instructor candidates to be very careful and sparing in their use of the word safe as ‘safe’ cannot be measured. Many instructors say for instance, “I want to see the student fly a safe approach”. What they really mean is they want to feel safe but feeling safe isnt a measurable value. The parameters of the stabilisation height however are and they are measurable both by the student and the instructor.