This Reform Should Top Every State Legislature’s Economic Recovery Agenda

April 15, 2020
By Christina Sandefur

As I recently pointed out, the coronavirus crisis is making the ability to earn a living from home more important than ever. But in their new and timely paper published with Utah State University’s Center for Growth and Opportunity, “Zoning for Opportunity: A Survey of Home-Based-Business Regulations,” M. Nolan Gray and Olivia Gonzalez reveal that outmoded zoning ordinances are restricting the ability of entrepreneurs and business owners to work from their home.

Gray and Gonzalez’s research reveals that working from home has been the norm for much of America’s history—that’s why the traditional American Main Street has shopkeepers living above their businesses. But with the Industrial Revolution, advances in transportation, and technological innovations, professional and personal no longer had to co-exist under the same roof, although home-based businesses continued to exist. Early zoning regulations accommodated remaining home occupations by explicitly carving them out as acceptable in residential neighborhoods.

Of course, innovation frequently outpaces regulation, and these enumerated businesses quickly became outdated and often reflected the preferences of special interests or the cultural and economic elite. Meanwhile, rapid advancements in telecommunications technology have again changed the way we work, as more and more Americans are choosing the flexibility and cost-effectiveness of home occupations.

In an attempt to revise an archaic regulatory framework, many cities shifted to permit-based systems to regulate home-based businesses. But for many who work from home, this scheme has proven to be arbitrary, confusing, and not even tied to mitigating nuisances or ensuring neighborhood consistency. According to Gray and Gonzalez’s research, most cities that regulate home-based businesses today only allow for specific occupations and often require those workers to meet detailed performance standards in order to get government permission to work from home.

As a result, rather than focusing on abating nuisances or ensuring home work is compatible with the neighborhood, cities focus on specifying the percentage of a home’s floor area that can be used for business purposes, or limiting the number of people that can work at the business (on or off-site), or barring equipment that is “not normally part of a household.”

These regulations do nothing to protect neighborhoods, and they wreak havoc on people’s ability to earn a living from home—something that has taken on a new significance in recent weeks as Americans battle COVID-19.

These counterproductive and discriminatory rules are bad enough in times of plenty—they stifle entrepreneurship, prevent home-based businesses from getting off the ground, and encourage neighbors to spy on each other. But as economists predict that over a third of America’s workforce is or will soon be unemployed, such regulations are unconscionable.

Gray and Gonzalez recommend that policymakers replace this regulatory regime with permissionless innovation—the presumption that experimentation with new technologies and business models should be permitted by default and only prohibited if it causes actual harm. At the Goldwater Institute, we call this approach the Home-Based Business Fairness Act, a state reform that says people who work from home without disturbing their residential neighborhoods can do so, without seeking a costly and time-consuming home occupation license. It should be at the top of every state legislature’s economic recovery agenda.

Uncertainty is often a threat to prosperity, and with many businesses shuttering indefinitely, the country’s economic health is in serious jeopardy. But Americans are industrious, resilient, and entrepreneurial, and people can and will find innovative ways to earn a living and serve their community’s needs, so long as government lets them. It’s high time for policymakers to embrace the presumption of liberty, empowering people to pursue the American Dream without having to ask government for permission.

Christina Sandefur is the Executive Vice President at the Goldwater Institute.