Home-Based Businesses: Finding the American Dream at Home
Home-based businesses offer people an accessible path to entrepreneurship. There are many reasons people aspire to start a business. Perhaps they want to be the next Mary Kay or Steve Jobs, who famously launched the multi-billion dollar company that is now Apple from his garage. Perhaps they are tired of the 9-to-5 and want to be their own boss. Or perhaps they want to fill a need in their community and earn an honest living doing it. Whether their dreams are modest or ambitious, starting a business out of their homes can make it more cost-effective for would-be entrepreneurs to succeed.
Opening a brick-and-mortar business can cost thousands of dollars more, depending on industry and location. In Nashville, for example, rents for office and retail space are at an all-time high—around $23 per square foot for office space and $25 per square foot for retail space—making it difficult for small and independent businesses to thrive. And that’s on top of other costs necessary to open a business, including acquiring all of the necessary permits, insuring the business and hiring employees. These high startup costs can prevent people with great business ideas from ever pursuing them. That’s bad for everybody.
Home-based businesses, however, allow an entrepreneur to figure out what works and what doesn’t before taking on the expense of commercial space. One study found that most needed less than $25,000 to get going—a sum many business owners can pull together from personal savings or loans from family and friends. Particularly in lean economic times, the low cost of starting a home-based business can significantly reduce the risks inherent to starting a business.
Additionally, some small businesses just make more sense in the context of the home, particularly those operated by only one person. An overwhelming 60 percent of home-based businesses are run by people who work by themselves. For an individual who just wants to personally offer tutoring, tax preparation or music lessons, it likely will never make sense—or be financially viable—to obtain commercial space.
Nashville’s Home Occupation Law
Nashville, Tennessee is a booming city with a diverse economy. World-renowned for its thriving music scene, the city bills itself as “Music City, U.S.A.,” but many of its roughly 685,000 residents also find work in the healthcare, publishing, banking, and transportation industries. Many others—the focus of this lawsuit—work from home.
The Institute for Justice analyzed Nashville’s business records and found at least 1,600 home-based businesses operating within the limits of Nashville’s consolidated city-county jurisdiction. These businesses provide a valuable contribution to Nashville’s economy, and to their proprietors, they provide a livelihood.
Unfortunately, many of them are illegal. A provision contained in Nashville’s residential zoning ordinance prohibits any so-called “home occupations” from serving clients on the property. This home-business client prohibition was added to the city’s zoning code in 1998 without public debate or any record of why the law exists.
The Nashville government evidently has some misgivings about this prohibition because it maintains a don’t-ask-don’t-tell enforcement policy toward enforcement. The local Department of Codes and Building Safety, known as “Codes,” investigates home-based businesses only when somebody complains.
“It’s not something you could drive by and notice,” explained Codes Assistant Director Bill Penn to a columnist for The Tennesseean in 2015. “It’s something neighbors would have to turn in.”
Nashville also doesn’t seem to want its home-business ban to apply as broadly as it does because Nashville allows at least three kinds of home-based businesses that serve clients: day care homes, owner-occupied short term rentals, and historic home events. Those businesses are allowed to serve 12 clients per day in most cases.
Amazingly, the home-business law’s defenders even boast about how well Nashville’s illicit home-based businesses fare under this enforcement scheme. “I’ve got tons of small businesses in my neighborhood, and nobody’s complaining about them,” said Nashville Councilman Carter Todd, explaining his ‘no’ vote on a 2011 bill that would have legalized home-based businesses. “I’ve got—down the street, there’s a tutor. Farther down the street, there’s a woman that teaches swim lessons. All these things technically may be against the law, but they don’t bother anybody, nobody complains about it, and [the don’t-ask-don’t-tell policy] works.”
But that’s simply wrong. Neither Pat Raynor’s nor Lij Shaw’s home-based business could be seen or heard from the street, but Codes ordered them to shut down anyway, accusing them of no violation other than simply having a business.
In December 2016, Lij and Pat applied to the city to rezone their homes to allow Lij’s home recording studio and Pat’s hair salon to serve a limited number of clients.
Their neighbors turned out overwhelmingly in support, presenting the Nashville Metro Council with petitions bearing the signatures of 39 and 44 of their neighbors, respectively. But it was not enough for the government. Several months and public hearings later, their applications were denied. Lij and Pat are left with no options other than to sue for their right to work from home.
Residential zoning laws are a relatively modern creation. They restrict property rights by their very nature, and the U.S. Supreme Court did not clear them as constitutional until 1926. In Village of Euclid v. Ambler Realty Co., the Court held that municipal governments, if allowed under state law, could exclude industrial uses from municipally-defined residential zones. But whatever an industrial use may be, it’s clearly not Lij’s or Pat’s quiet, by-appointment-only home studios. As originally authorized by the Supreme Court, zoning laws were not meant to tell people how to behave inside their homes.
Since 1926, however, zoning laws have grown far more intrusive in scope. In 1974, the Supreme Court held that a New York college town could use its residential zoning laws to prohibit unrelated graduate students from signing a lease together as housemates. Together with a follow-up case holding that zoning laws could not be used to prohibit grandparents from living with their grandchildren, the Belle Terre decision remains the Supreme Court’s last statement on the constitutionality of zoning laws. As a result, municipal governments today believe themselves free to abuse the zoning power to regulate or prohibit almost anything they want, even if doing so has no plausible connection to a legitimate government interest like health or public safety.
That is what has happened in Nashville. Lij and Pat are law-abiding citizens who have the overwhelming support of their neighbors, no criminal record, and a safe and unintrusive home-based business–far less intrusive than the many home-based businesses the city allows. It’s unfair of Nashville to single Lij and Pat out.
Nashville’s home-business law is “dishonest,” according to Metro Councilwoman Burkley Allen at a February 2017 Planning Commission hearing on Lij and Pat’s SP applications. City officials know that home-based businesses are everywhere, yet they adhere to a don’t-ask-don’t-tell enforcement policy that admits law-abiding Nashvillians are better off lying to the government about their home-based businesses.
Furthermore, residential zoning laws cannot be used to regulate a home-based business that can’t be seen or heard from the street. Residential zoning laws are meant to maintain the character of residential neighborhoods—not tell residents how to behave inside their homes. The Tennessee Constitution, which affords greater protection for substantive due process than its federal counterpart, prohibits such an intrusive regulation of someone’s use of her own home. The government could never prohibit Lij or Pat from having a friend over for a visit. It doesn’t make sense that the government could prohibit them from having customers over.
The Institute for Justice and the Beacon Center have teamed up to affirm Lij and Pat’s right to work from home. Their victory in court will expand legal protections for property rights, recognize meaningful limits on the zoning power, and vindicate the right of all Tennesseans to earn an honest living in their homes.
 https://www.nashville.gov/Codes-Administration/Property-Standards/Code-Enforcement/Report-A-Codes-Violation.aspx (encouraging tipsters who do not want their identities known to report violations anonymously).
 Both Jobs and Ash started their businesses at home. Griggs, B. (2016, January 4). Steve Jobs’ boyhood home becomes historic site. CNN. Retrieved from http://www.cnn.com/2013/10/30/tech/innovation/stevejobs-
historic-home/index.html; Hisrich, R. D. (2014). Advanced introduction to entrepreneurship. Northampton, MA: Edward Elgar.
 Getahn Ward Ballooning Nashville office rents strain businesses, The Tennessean (May 24, 2016), http://www.tennessean.com/story/money/realestate/2016/05/19/ballooning-nashville-officerentsstrain- businesses/84492626.; Linda Bryant. , Small retailers reel from rising rents, Nashville Post (October 10, 2016),http://www.nashvillepost.com/business. retail/article/20836417/small-retailers-reel-from-risingrents-rates.
 Bruce D. Phillips, Home-based firms, e-commerce, and high-technology small firms: Are they related?, Economic Development Quarterly, 16(1), 39–48, available at http://journals.sagepub.com/doi/pdf/10.1177/0891242402016001005
 Institute for Justice analysis of Census Bureau data. 2012 survey of business owners: Statistics for all U.S. firms that were home-based by industry, gender, ethnicity, race, and veteran status for the U.S.: Dataset 2012 Survey of Business Owners , available at American FactFinder (Census Bureau), https://factfinder.census.gov/bkmk/table/1.0/en/SBO/2012/00CSCB19.
 Nashville, Tenn., Metro. Code § 2.62.055.
 Davidson County, Tennessee, available at QuickFacts (Census Bureau), https://www.census.gov/quickfacts/fact/map/davidsoncountytennessee/PST045216#viewtop.
 Nashville, Tennesse, Wikipedia (December 1, 2017), https://en.wikipedia.org/wiki/Nashville,_Tennessee.
 https://ij.org/report/finding-american-dream-home; see also http://www.tnledger.com/editorial/article.aspx?id=52959.
 Metro. Code § 17.16.250(D)(1).
 Frank Daniels III, If Short Term Rental OK in Metro, why not home studios, The Tennessean (Dec. 1, 2015).
 Metro. Code §§ 17.04.060, 17.16.250(E)(4)(f); see Demonbreun v. Metro. Bd. of Zoning Appeals, No. M2009-00557-COA-R3CV,2011 WL 2416722, at *4 n.7 (Tenn. Ct. App. June 10, 2011) (ordering Nashville to grant a homeowner a permit to entertain 40 clients 6 times per week).
 MetroNashville, 07/05/11 Council Meeting, YouTube (July 6, 2011), https://youtu.be/0UlVzksRJPI?t=53m10s.
 Petitions to the Nashville Metropolitan Council, available at http://ij.org/wp-content/uploads/2017/11/Shaw-SP-council-petition-redacted.pdf, and http://ij.org/wp-content/uploads/2017/11/Raynor-SP-Council-Petition-redacted.pdf.
 Clients, The Toy Box Studio, available at www.thetoyboxstudio.com/client-list.
 Mike Farris, Shine for All the People (2015).
 Although Pat is past the prime of her career and can’t maintain a 40-hour workweek much longer, it makes little sense for her to retire with perhaps two decades of life in front of her. Retirement at 65 may be anachronistic as life expectancies have risen dramatically in the developed world. It benefits both Pat and the economy for her to continue working, and flexible work hours may be the key to allowing that to happen. Special Report, Footloose and fancy free, The Economist (July 6, 2017), https://www.economist.com/news/special-report/21724752-recently-retired-may-have-promising-future-entrepreneurs-and-giggers-retirement (July 6, 2017).
 272 U.S. 365 (1926).
 Vill. of Belle Terre v. Boraas, 416 U.S. 1 (1974).
 Moore v. City of E. Cleveland, 431 U.S. 494 (1977).
 MetroNashville, 01/26/17 Planning Commission Meeting, YouTube (Jan. 27, 2017), https://youtu.be/bwB9qYFI-Fg?t=2h13m44s (Vice Planning Commissioner Farr, explaining why she would have to recommend disapproval of Lij’s SP application: “I too am very sympathetic to this. And as soon as I read it my first question is just—if he didn’t have five customers—if he hadn’t openly stated five customers a day would be coming here then it seems like it would be an approved use.”); MetroNashville, 02/09/17 Planning Commission Meeting, YouTube (Feb. 10, 2017), https://youtu.be/-NR0SfUkL8k?t=2h21m33s (whispers among planning commissioners worried that country music star Big Kenny “will get turned in” after Commissioner Jeff Haynes named his home recording studio on the record).