March 11, 2020
As technology has improved and work has become further decentralized, more and more Americans are now choosing to run their own business out of their home. Home-based businesses (HBBs) make up an important part of the American economy. They also provide economic opportunity to those who have faced barriers to participating in traditional work, such as stay-at-home parents and those with mobility-related disabilities. Home-based businesses range from small operations run by just one person to incubators that later grow into major tech giants.
Although HBBS play an increasingly important role in the modern economy, local zoning ordinances restrict the ability of entrepreneurs and small business owners to operate from their home. Many of these zoning restrictions were designed to prevent HBBs from negatively impacting neighbors. But because HBBs today tend to be run online, often with few employees or visitors, these regulations have become outdated. Strict standards and costly permits create regulatory burdens that can drive HBBs underground or prevent them from ever getting off the ground.
In this policy paper authors Gonzalez and Gray survey the literature on HBBs, including the history of regulations on HBBs. Next they review current attempts at reform at the city and state level. They conclude by summarizing next steps for reform and provide a framework for thinking about how to more effectively regulate HBBs without stifling innovation and economic opportunity. Their suggestions for reform include:
- Phase out “customary” language that only permitted specific occupations that traditionally took place in the home.
- Tie all performance standards to measurable health, safety, and welfare impacts.
- Create a permit-free category for HBBs with no impact on neighbors.
- Offer flexible review and permitting for unconventional HBBs.
- Develop profession-specific regulations that address important risks without making compliance overly burdensome.
Home-based businesses provide real economic opportunity to entrepreneurs and small business owners and play a meaningful role in the economy overall. Policymakers who want to expand economic opportunity in their local communities should consider reforms to zoning ordinances that address potential impacts on neighbors without unnecessarily stifling entrepreneurship at the local level.