The affordable housing part is going to be tricky anywhere even remotely near the Bay Area…depends what you mean by affordable, and whether or not you are looking to buy or rent.That said, here are some smaller towns in the bay area that I find particularly nice: Check out Half Moon Bay, south of San Francisco, really cute little beach town…or, in Marin (north of the city) check out Fairfax or Sausalito (Fairfax will be cheaper than Sausalito but still pricey). There are lots of other little sweet towns along HIghway 1—the best way to find one you like is to drive up the coast and check them out. Anything on Highway 1 or in Marin is going to be close to nature—however, may also be expensive. Point Reyes Station is very very small but lovely. There is a great tiny town in the east bay called Port Costa. It’s farther from the city, and a truly small town with just one big bar and a post office, but really pretty and friendly. If you want to live in San Francisco proper, in a neighborhood that has more of a community feel, you could check out Bernal Heights or Noe Valley, both very urban, but more of a family/community feel than some other areas of the city. I also have a friend who lives in Alameda, an island off of Oakland, which is more affordable than either SF or Oakland and has a more small town feel, although it’s not actually a small town.

And of course—Berkeley and Oakland are certainly not small towns but they are more affordable than SF and have more of a cozy community feel as well, so you may want to explore the east bay…there is a lot of amazing food and no dearth of coffee shops in Berkeley.

Great suggestions above.

The only thing I can think of, small town wise. They are probably afforadable. Not sure affordable-wise you are thinking. Are you renting or planning to buy a home?

Or Santa Cruz Mountains…towns of Boulder Creek, Scotts Valley.

We love Half Moon Bay. OCC is right, a lot of cute towns along hwy 1. Theres Half Moon Bay, and Princeton by the Sea north of HMB.

Santa Rosa, Petaluma, Napa areas are nice towns.

Not sure how long of a drive..the further away the city of SF (usually cheaper)

The East Bay is cheaper where I grew up compared to the west bay. There are small towns of Lafayette, Alamo, Clayton. We used to live in Walnut Creek and I commuted to work to SF by bart train.

some related ideas: http://fluther.com/disc/2084/what-are-great-alternative-neighborhoods-in-the-bay-area/

We’ve lived in Alameda for the last five years, and we absolutely love it. It’s got a great small-town atmosphere, but it’s only 20 minutes into SF by bart or ferry. We’ve got a good bookstore, tons of great coffee shops, a tiny comfy movie theater in town, and another bigger theater right across the estuary in Jack London Square. It’s not really affordable by any normal standards, but as far as the Bay Area goes, it’s about as affordable as you can get! =)

I strongly recommend Petaluma for small town. Good food. Good nature. Good coffee. It’s forty minutes north of SF. A lot of these other small towns feel suburban. But you could really get into living in Petaluma.

how about berkeley or emeryville?

Petaluma is great and definitely gaining popularity in Sonoma County. The nice thing about Petaluma is that they have some great music venues as well.
However, I can’t believe no one has mentioned Sebastopol. I am not sure how small you want to go but it is great town. It is about 15 minutes north of Petaluma (an easy 45 minute drive to the city) with a cute town center (that has one fantastic book store, a video store, movie theater, whole foods, a couple of restaurants, etc). Outside of the town you get into a lot of orchards and farms. There is great local hiking and walking and you are 30 minutes from the coast, 1 hour from Point Reyes, and a stones throw from lots of local parks! A final word on Sebastopol: it is considered liberal even by CA standards (that is pretty liberal) so if that is your leaning, Sebastapol is the place for you!