ARLINGTON, Va.—A newly released national survey shows how home-based businesses provide flexibility and opportunity for their owners—particularly during tough times like the COVID-19 pandemic. But for many home-based businesses, local regulations stand in the way of owners using their home to make an honest living. The Institute for Justice (IJ) today released “
Work Entrepreneur from Home,” which includes the results of the survey and analysis of the regulatory challenges facing home-based businesses.
The survey, conducted among nearly 2,000 home-based business owners, shows that a substantial share of new businesses were started in response to the pandemic. One in three home-based business owners started their venture after pandemic-related job losses, while one in four did so after pandemic-related business closures. With the U.S. Small Business Administration estimating that more than 15 million businesses operate out of homes, the survey suggests that home-based businesses helped millions of Americans provide for their families during the massive disruptions caused by the pandemic.
Survey results also show that home-based businesses add diversity to the small-business sector. While women make up about one-third of the total population of small-business owners, 55% of home-based business owners surveyed were female. Racial and ethnic minorities made up 21% of survey respondents even though they make up only 14% of small-business owners overall.
Most home-based businesses are modest in size but provide critical income for their owners. More than two-thirds of those surveyed said their venture was important to their household’s financial security. Median annual revenues were $15,000 in 2020, but revenues varied widely by business type, with IT businesses generating $45,000 and crafts businesses $3,000.
“Home-based businesses help millions of Americans provide for themselves and their families, but it’s a sector that doesn’t get as much focus as small businesses in office buildings or storefronts,” said report author and IJ researcher Jennifer McDonald. “These businesses operate quietly, but the survey speaks volumes about how important it has been for Americans to use their home to run their business.”
Unfortunately, there are significant and sometimes insurmountable regulatory barriers to operating even relatively simple businesses from a home. The survey showed that:
- Most respondents reported it took more than two months to jump through the regulatory hoops required to start their businesses.
- Respondents tend to view home-based business regulations as burdensome, rating having to pay high fees and navigate complex local rules to start a business at home as the most onerous.
- Common regulations also include limits on client visits, non-resident employees and in-home sales, as well as special permission slips called “conditional use permits” that can require extensive paperwork, fees and public hearings to start a new business.
For instance, IJ clients Pat Raynor and Lij Shaw were ordered by their county to stop seeing clients in their Nashville homes, which effectively shut down their businesses. Pat is a licensed hairdresser who converted her garage into a salon with a single chair for customers and Lij operates a home studio that award-winning musical artists have used to make recordings. Pat and Lij’s legal challenge to Nashville’s rules will be heard this week by the Tennessee Supreme Court. The county temporarily relaxed its home business rules in 2020, allowing Pat, Lij and others to welcome customers into their homes, but the reprieve is set to end in 2023.
“In many places, needless red tape stands in the way of people starting even modest ventures in their homes,” said IJ Legislative Counsel Meagan Forbes. “These rules often require prospective business owners to use measuring tape to calculate how much space they use and then only work within that corner of their home. Some rules ban entrepreneurs from storing any merchandise in their homes or having even a single customer visit. This micromanagement of home-based business stands in the way of people supporting themselves and their families.”
The Institute for Justice is a nonprofit public interest law firm that advocates for economic liberty and property rights. Last year, IJ-supported legislation passed in Florida banning city and county governments from regulating work that happens strictly inside a residence. IJ has also advocated for home bakers in legislatures across the country and successfully litigated on their behalf in Wisconsin, North Dakota and New Jersey (which recently became the last state to legalize homemade food sales).