It's a pretty fallacious argument to claim that the only option for those wishing to live close to transit must pay $500,000 for a townhouse. A quick look at the MLS shows that there are plenty of 3 bedroom detached homes available for under $400,000 near the Danforth, for example. Once you factor in ownership of one less car (you can still have one), a shorter commute, and improved quality of live, it's a bargain!
Given the absurd cost of car ownership, even cutting back from two to one per household frees up a lot of cash to spend on a nice house. My fiance and I were thinking of getting a car, but with a $300 car payment, $200 in gas, at least $300 in insurance, and maintenance costs, it quickly becomes obvious that car ownership is a losing proposition.