Half of US Businesses are Home-Based. So Why Do Some Cities Want to Kill Them?

People have many reasons to work at home: rearing children, physical disability, age, little startup capital to rent office space—and, of course, who wouldn’t want to work in their bunny slippers? So it should be unsurprising that the arrangement is popular. In fact, the US Census Bureau reports that 51.6 percent of all businesses are “operated primarily from someone’s home.”

The Great Recession and better technology have made working out of the home more urgent and more practical. The Des Moines Register writes, “Downsizing and office closures following the 2008 recession and greater access to broadband Internet have all contributed to more people working from home.”

Home-based businesses also bring goods and services into areas whose needs are not being met because they are far from commercial centers. And many provide a second source of income to workers who already have a day job, helping to make ends meet.

Despite all the benefits provided by home-based businesses, some cities are on the war path.

Last year, Nashville, Tenn., destroyed 63-year-old Pat Raynor’s home-based hair salon. Pat was forced to move her equipment, her lone barber chair, and her livelihood from her converted garage into an expensive commercial space. Her crime? Seeing customers at her house—one at a time. Nashville allows home-based businesses but prohibits clients or patrons from being served on the property. In the Music City it is even illegal to teach piano lessons in a living room.

Up the road in Knoxville, a stay-at-home mom and entrepreneur, Jacoyia Wakefield, followed all the rules and obtained the necessary licenses to operate a small daycare in her house. But NIMBY neighbors were able to exert more political influence than she and convinced the city council to overturn the planning commission’s permit. Jacoyia was forced to hire legal counsel and months later was still battling hostile neighborhood groups, outraged that she was offering to watch their kids in a safe and convenient location at a low price.

North Ogden, Utah, recently wiped out a whole swath of home-based businesses. On March 31, the city council opted not to take the usual path of grandfathering in existing, non-conforming uses, but chose instead to shutter some businesses immediately and to put others through an “amortization” process, slapping a sell-by date on them. The local paper editorialized, “Longtime home businesses have provided services over the years to area residents that were not conveniently located nearby.” But the council kept repeating that they want any home-based businesses to be “invisible.”

These types of regulations are all too common. As IJ’s Beth Kregor explains, “Numerous American cities have strict rules about what businesses can operate as home-based businesses. Zoning departments loyally adhere to an aesthetic ideal of residential neighborhoods that are havens from the workplace.” Cities often prevent home-based businesses from hanging signs, parking commercial vehicles on the street, receiving clients, or bringing employees into the home. But these rules are outdated and unsuited for the new economy. Kregor continues:

Flat restrictions on home-based businesses regardless of their externalities or impact on the neighborhood ban the very kind of low-budget, experimental market testing that is necessary for an innovative start-up. Chicago’s rules against operating a business in a garage or making a product that is sold elsewhere would have outlawed Amazon, Dell, Microsoft, and Chicago’s own The Pampered Chef. If those businesses had never started, America would have lost hundreds of thousands of jobs.

Chicago’s regulations seem particularly burdensome when compared to those of smaller, more innovative Midwestern cities. Clive, Iowa, recently overhauled its code to make it easier for home-based businesses to get permits. In nearby Norwalk, graphic designer Lucinda Sperry operates a 600-square-foot home studio so that she can keep an eye on her kids. She couldn’t do that in the Windy City, which limits home businesses to permanently occupying no more than 10 percent of the floor area of any single-family residence and never more than 300 square feet.

There’s something especially onerous about dictating what goes on at a home-based business within the four walls of the house. Chicago’s floor area limitations may be outdone by Phoenix’s requirement that home-based business activity “shall be limited to the hours between 7:00 a.m. and 10:00 p.m.” That doesn’t just mean serving customers or rebuilding a car late at night—that means all work after 10:00 p.m. That is precisely the time when many self-employed, home-based business entrepreneurs may find the time to work, after having put their children to sleep or come home from another job.

With so many cities kicking businesses out of the house, some states have stepped in to champion stay-at-home entrepreneurship. According to a study by the Small Business Administration:

States can enact home occupation legislation that is supportive of home-based businesses. Some states have done this, and some of the state legislation is explicit or forceful:

  • Maryland statutes include a definition of “no-impact” home occupation, which is a broadly adopted standard.
  • Vermont forcefully states the right of a person to operate a business in his home.
  • California statute requires all local jurisdictions to allow day care homes, and it goes so far as to void any contractual agreements to the contrary.

California has also made waves by legalizing “cottage food” businesses that sell edible goods prepared in a home kitchen, resulting in thousands of new jobs. And Lucinda Sperry, the graphic designer from Iowa,received help crafting her initial business plan from the Iowa Small Business Development Center.

There are better ways to regulate home-based businesses than what is found in Nashville and elsewhere. Rather than city councils attempting to predict future business models and decide which of those are permissible, municipalities should presume that home-based businesses are OK up until they bother someone, at which point existing nuisance laws and the accompanying procedures take over. Worse still is creating an environment where the decisions about which home-based businesses are allowed and which are not inevitably turns upon who has better access to decision makers.

Restrictions on home-based businesses have an enormous effect on millions of entrepreneurs chasing the American Dream and struggling to earn an honest living. As the same SBA study says, “Government regulations typically have a disproportionately large impact on very small businesses.” Imagine a world where every government white paper opened with that outlook. IJ is working toward that world, and we want you as part our team. If you are a home-business owner facing burdensome regulations, we want to hear about it.

— Garrett Atherton

Garrett Atherton is the outreach coordinator at the Institute for Justice

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