This is below 3.5’s abstraction level
All RPGs have to draw a line at some point about how abstract/simulationist they’re going to be. 3.5 isn’t super-consistent about this (all the little feints, positionings, and motions of combat are abstracted to a 5-ft. square, while flying creatures have turning radii and uphill and downhill speeds and minimum forward velocities, etc.), but at any rate as far as equipment is concerned, wear & tear on gear is below the abstraction level.
This is because the rules do not have any suggestions on player income (aside from the optional random-reward generation tables), only guidelines for player wealth. Wealth is the total value of the things you currently have; if gear becomes worn out and of no use, it is no longer counted as a part of your wealth (or its value added to your wealth is zero; same thing). See this answer for example:
As you can see, rewards using these tables generate more wealth than indicated. We assume characters use up that additional money on expenses such as being raised from the dead, potions, scrolls, ammunition, food, and so forth.
That is, the system has built-in extra income for the sake of consumables. Gear that wears out is just a really long-term consumable.
Basically, the system assumes that the players are keeping their equipment maintained – and paying out money to do so – behind the scenes. Because it’s behind the scenes, the system doesn’t expect them to have money for this and doesn’t expect them to explicitly say so. It’s abstracted. Even in a system with explicit wear and tear, the system says that the players should basically be “compensated” for that to maintain the intended wealth level.
In other words, the system has absolutely nothing for you. As far as the rules are concerned, the answer to your question is “the question is not well-formulated.” You would have to homebrew everything from the ground up.
Also, side-note, magic items, should they become available, have most of their mundane stats (like HP and Hardness) dramatically improved. These may quite naturally not wear out.
3.5 works very poorly at low-wealth without massive other changes
Dungeons & Dragons 3.5 is a very, very high-magic system. Magic is basically everything. If you don’t have magic, you have to buy it. Classes that get magic natively are (vastly) more powerful than those who do not. By lowering the amount of wealth that players have available, you eliminate the possibility for non-magic classes (which are already very much at a disadvantage) to buy magic for themselves. The system basically entirely breaks down: you need magic to solve most problems.
At very-low (1-4) levels, this problem is not very pronounced: magic is unavailable to many people anyway. Magic makes things easier but is not expected. By 5-6, DR/magic, swarms, incorporeal enemies, and so on start making characters without magic have a hard time. Without a magic weapon, players of mundane characters will have no answers to these enemies. Even if these enemies are avoided (which becomes increasingly difficult to do as DR/magic in particular becomes quite common), players are at a slight but pervasive disadvantage compared to where the game expects them to be. At these levels, the problem certainly exists but can easily be below players’ threshold for noticing them.
However, these problems continue to accumulate, and in fact accelerate, as levels increase, and sooner or later (in my experience, sooner more commonly than later) these effects begin to have a noticeably detrimental effect on players’ ability to succeed, which in many cases has a detrimental effect on players’ enjoyment of the game.
And not noticing a problem does not mean that it doesn’t exist. Intraparty imbalance, in particular, is severely exacerbated by low-wealth, because of the disparities between magic and mundane classes. Players that are not concerned with balance may not notice or care if they’re being carried by magic characters, but it may make things more and more difficult for the DM, as it becomes increasingly difficult to challenge the players: either some are overpowering encounters easily, or others are completely useless.
So unless you are doing things like banning all native-magic classes, throwing out the overwhelming majority of monsters and traps, and limiting adventures to extremely small-scale and local issues, the system is going to break down and you are shafting your non-magical players even more than the system already does.
If you are making all of those changes, you simply don’t have much system left.
You would be much better served by a system designed from the ground up for what you want.
I say all of this because you seem to be attempting to shove a round peg through a square hole: D&D 3.5 is not designed for this sort of game, and it can only accomplish it if you strip away most of the systems, and homebrew entirely new systems in their place.
There are other systems that are designed from the ground up intending to work more the way you want this campaign to go. You don’t have to figure out your own rules for wear and tear or for paying to repair things: that’s already a part of the system. You don’t have to worry about removing tons of classes and monsters: they were never there. And because the game was designed from the ground up with these things in mind, other options will exist that your stripped-down 3.5 will lack.