Honestly, it's a matter of personal choice and sacrifice. I'd much rather live in a smaller unit - even a studio condo - that is walkable to almost EVERYTHING than a smaller city where I have to drive. Living downtown, I can walk to restaurants, have easy access to culture, shopping and much more. Sure, there are malls in London, ON and St Catherines, but one can easily get sick and tired of the same chains. And to think that I have to drive at least an hour to go to the symphony, the opera or to see a really cool art exhibit is just not something I want to do. Heck, I'd rather raise a child in an 800 sq ft unit downtown than a 2,500 house in the 905.
Easily said - you must be younger and childless - you may feel differently when you have children in such a unit.
And it's not really just a personal choice - being close to the symphony and opera is nice but only if you can afford the symphony and the opera. and these "studio apartments" are difficult (pretty much anything under $300,000 is a no bedroom studio) - you cannot entertain in them and they generally have one small closet for everything & no counter space. My neighbours son lives in such a unit and uses his parents basement here in Mississauga for his storage needs (winter clothes in the summer, summer clothes in the winter etc.) Independence with strings attached. Hopefully his parents always have a home he can use.
I love Toronto, I always have and likely always will, but the city is slowly becoming unaffordable - I work with a lot of first time home buyers and am surprised to hear them say how disappointed they are with the lack of affordable condos with outrageous maintenance fees and the crowding on the subway. When I was younger, I would have loved to live downtown, (would still love to live downtown frankly) however, given what I earned back then, i don't think i could have afforded it much less the symphony and/or the opera. But like you, that would have been my dream too.