We've done all three to our yard in Oakland, and its great. We xeriscaped most of our yard, with plants fed by drip irrigation. We put in a small patch of grass (about 300 square feet) with a sod called "native no-mow" that is literally that: it gets long and we don't mow it. We do have to weed it occasionally. The rest is covered in gravel.

The project wasn't cheap, but it wasn't that outrageously expensive, either, especially not compared to the cost of housing. We have to irrigate some, but nothing like what a lawn would need. And we have a nice outdoor space to hang out and entertain in, way nicer than concrete.