Well the story pretty much starts back in like 1973 when they were discussing extending Line 2 from Warden to Kennedy. At the time there was talk briefly by the politicians in the then Borough of Scarborough about extending the line to the planed Scarborough Town Centre. These discussions eventually stopped when the cost for the 1 stop extension to Kennedy came in at around $73 Million. Remember this is the 1970's and a further extension beyond would have easily ballooned the cost beyond $100 Million. For comparison to get the original segment of Line 2 to Woodbine and Keele (the line was originally supposed to run between St.George and Greenwood) cost only an additional $60 Million a decade prior.
At the time the funding structure for these types of projects was different and Metro Toronto bore the brunt of the cost. This is different from today were funding for these types of projects are split equally between the City, the Province, and the Feds.When everyone saw the cost it was decided they would use a cheaper alternative. This was supposed to be a "High-Speed Streetcar Line" (what we would today call an LRT line). 2 were supposed to be built in fact, 1 in the east; the Scarborough RT, and one in the west; the Etobicoke RT. Both lines were actually supposed to have branch services. In the case of the Scarborough RT, one branch would follow the current route and evenutally head to the Malvern neighbourhood, while another was to run to Markham Road and eventually Centennial College. The Etobicoke RT which was to start at Kipling Station was to have a branch running to the Airport and another branch to York University. All of this came to an end in the early 80's when the Province stepped in and essentially blackmailed Metro Toronto into using there ICTS trains (Vancouver and Detroit also use these trains).
TLDR; Shit would have been expensive and no one wanted to pay for it.