It's the argument that's used against expanding service everywhere.
Not every service is going to be full. We run buses, not because they're going to be full, but because it provides an alternative to driving. If you want to live without a car in York Region, and travel at night, you either pay lots of money for a taxi or Uber, or you don't travel at all.
Induced demand is also applicable to transit either. Because you run super-awful service that doesn't run at nights, you won't get a lot of riders. If service was good at night, more people would ride it.
Nonetheless, it is a valid point; personally, I would rather have 15 or even 5-minute service 7 days a week, 5 AM - 10 PM, on VIVA before night service.