by Christina Sandefur

You may have been following our work in support of Arizona’s Home-Based Business Fairness Act, which puts an end to the patchwork and outmoded zoning, licensing, and permitting requirements that Arizona cities are imposing on people who start businesses from home. Under the Act, home-based businesses that don’t cause disruption to the residential area aren’t required to obtain a costly and time-consuming home occupation license or permit. Local governments can focus their limited resources on mitigating nuisances through health and safety regulations; building codes; and traffic, parking, and noise ordinances.

M. Nolan Gray, an expert in city planning, and Olivia Gonzalez, research associate for the State and Local Policy Project for the Mercatus Center at George Mason University, published a paper last year called Making Room for Home-Based Businesses: A Survey of 12 Zoning Ordinances. The paper explains the economic importance of home-based businesses and how outmoded or unnecessary ordinances are burdening people who work from home.

Home-based businesses empower entrepreneurs to start businesses from their homes, earn and save money, maintain a flexible schedule, and realize their dreams of self-employment. Lawyers, psychologists, furniture repairmen and data entry technicians all work from their homes. In fact, according to the U.S. Census Bureau, in 2007 more than half of surveyed businesses were operated primarily from someone’s home. Home-based businesses also help make our economy run. Apple and Disney were both started in garages. But as Gray and Gonzalez note, companies like Hewlett-Packard, Disney, and Amazon might never have come into existence if they had to face today’s growing local restrictions on home-based businesses.

Through their research, Gray and Gonzalez found that the costs of complying with regulations are higher for small businesses compared to larger businesses – while some home-based businesses are able to bear those costs, others are put out of business or unable to get off the ground. Some homeowners are unaware of zoning requirements and other regulations until city officials impose stiff penalties or force them to cease operating, and still others operate their home-based businesses completely underground because the regulations are too confusing or severe.

The study then looks at 12 U.S. cities representing diverse geographic areas, analyzing how officials deal with home-based businesses. Gray and Gonzalez found that many cities try to discourage nuisance while accommodating home-based businesses by listing those businesses that are permitted in residential areas. But government officials can’t possibly know all of the enterprises that people will pursue from home in the future, and the lists quickly become out-of-date. For example, some of the surveyed cities broadly restrict or ban home-based businesses but make special exceptions for such outmoded professions such as millinery and clock repair.

Many cities also restrict the number of employees and clients that can visit the home-based business. Surprisingly, many cities even prohibit home-based businesses from employing off-site nonresidents. Chandler, Arizona, resident Kim O’Neil ran afoul of a similar restriction when she tried to run a quiet, unobtrusive medical billing business that helped doctors and patients, and provided flexible jobs to women – only to be shut down by city officials because she employed people who didn’t even work out of her house.

But Gray and Gonzalez found that not all cities take this heavy-handed approach. For example, San Diego explicitly allows low-impact home-based businesses to operate without obtaining government permission and only requires permits for high-impact home-based businesses.

With the Home-Based Business Fairness Act, Arizona lawmakers have an opportunity to promote common-sense, modern, and flexible employment across the state while protecting neighborhoods.

Most neighborhoods already have multiple home-based businesses that operate without disturbing anyone – and those are the practices this bill will protect. Cities that shut down home-based businesses often complain about traffic or neighborhood parking, but there are already rules on the books addressing such concerns. Banning home-based businesses out of fear that some might lead to disruptions is like banning all backyard barbecues because some parties get loud.

Rather than imposing counterproductive and discriminatory rules on people who work from home – stifling entrepreneurship and encouraging neighbors to spy on one another – the Home-Based Business Fairness Act strikes a fair and effective balance, letting Arizona cities focus on keeping communities safe rather than punishing people who happen to run a business from their home instead of from an office.

Christina Sandefur is Executive Vice President at the Goldwater Institute.