Home-Based Businesses Win Relief From Regulators

A recent boom in entrepreneurship challenges red-tape hurdles.

Recent years have seen a renewed surge in new small business start-ups after decades of slowing entrepreneurialism. Spurred by pandemic-era closures of large employers and in need of side hustles in the era of a higher cost of living, Americans are eager once again to be their own bosses. Standing in the way, though, are local regulations that often make it difficult to launch businesses out of private homes, where most startups are born. Fortunately, some localities are slowly getting out of the way.

Businesses Allowed by Right

The first good news comes from Bismarck, North Dakota, where this week the city commission eased regulations "to allow greater flexibility for business activity in residential neighborhoods than currently permitted, while still protecting the residential character of these areas," in the words of a May press release from the city's Community Development Department.

The regulatory change creates a three-tier system for home businesses. Minor home occupations, which have "limited to no impact on the surrounding residences," no longer require permits and are allowed by right; major home occupations which "have a small to moderate impact on the surrounding residences" are allowed by right in rural areas but need special-use permits in urban zoning districts; and "home occupations that exceed the major home occupations may only be allowed in rural zoning districts with a special use permit."

Yes, that's nitpicky. But it's an improvement over the detailed rules previously in force.

"In too many cities across the country, we've seen how local regulations can prevent entrepreneurs from getting their businesses off the ground," commented the Institute for Justice's (I.J.) Ellen Hamlett. "We applaud Bismarck officials for implementing the needed reforms to ensure home businesses can thrive, while still ensuring public safety and protecting against nuisances."

I.J. had successfully lobbied the city commission to let home-based businesses hire employees. That's a key requirement for any entrepreneur who hopes to grow beyond hobby status.

Outmoded Local Ordinances

Bismarck isn't alone. The New Jersey State Assembly, where good ideas generally go to die, last month overwhelmingly passed the Home Business Jobs Creation Act which "classifies certain home businesses as permitted accessory uses." The text of the law acknowledges "the trend toward increased working from home has been accelerating for years" and that "many of these home businesses are operating in violation of outmoded local ordinances."

The bill now awaits action in the state Senate, though the 65–3 vote in the Assembly is encouraging.

Not to look a gift horse in the mouth, but why the sudden interest in rolling back red tape that government officials spent years erecting as barriers to entrepreneurship? Well, Garden State legislators concede that COVID-19 "resulted in an increase of office closures across the country" and a subsequent surge in telecommunicating and entrepreneurship that runs up against their earlier efforts.

Pandemic Boost to Fading Entrepreneurship

"The Covid-19 pandemic triggered an unexpected boom in entrepreneurship, as Americans opted to start businesses at record rates," Kenan Fikri and Daniel Newman, of the Economic Innovation Group, wrote in January for the Harvard Business Review. "In October 2023, over three and a half years after the pandemic's onset, Americans were still filing 59% more applications to start new businesses than they were before the pandemic."

That's especially remarkable given that entrepreneurship had been sliding for decades. In December 2020, the Congressional Budget Office published a report bemoaning the fact that "several measures of entrepreneurship have declined since the early 1980s….During that period, new firms' share of employment fell by a third, from 14 percent to 9 percent."

Whatever the cultural, political, and regulatory causes of that decline, the stay-at-home orders and business closures of the pandemic were a huge wake-up call. However challenging people might have considered launching a business before the pandemic, it looked a lot less daunting than counting on employers who might be closed by executive fiat or forced out of business by a frozen economy.

"Not only did the pandemic deliver a tremendous economic shock that separated tens of millions of Americans from their employers, it—and the lockdowns that came with it—impacted people very personally, too," added Fikri and Newman. "In short, the months after the pandemic hit were a period of social disruption the likes of which the country hadn't seen in decades."

Even for some of those confident in their jobs, side hustles became a necessity when, by the federal government's own figures, it took $122 to purchase in 2024 what $100 bought in 2020.

Inevitably, many of those new businesses were going to be started in home offices and garages. Small Business Administration data shows that 50 percent of all businesses are launched out of homes. It's a space that people already occupy, reducing capital requirements for getting started. Homes are resistant to the sort of regulatory meddling that closed commercial spaces during the pandemic but have a harder time reaching into residences. And homes often have facilities – such as offices, workshops, and kitchens – that entrepreneurs need to turn a hobby into a business.

New Businesses Are Cooking

Along those lines, a boom in cottage food startups frequently runs afoul of rules that are burdensome even for established restaurants and caterers. But the desire for relief from regulation that's spurring reform in Bismarck, North Dakota and New Jersey is felt very strongly by home-based cooks. After first vetoing a cottage-food deregulatory bill, Arizona Gov, Katie Hobbs signed it in March on the second pass when her own Democrats joined with Republicans to threaten an override.

"Home-based businesses are a vital part of the American economy, which is why it is so crucial other cities follow in Bismarck's footsteps to create a regulatory framework that allows these businesses to succeed," noted IJ's Jennifer McDonald. "Some of America's biggest companies, such as Google, Microsoft, Apple, and Disney, were started from home."

But a startup business doesn't have to grow to be a giant to be worthwhile. It doesn't even have to leave the kitchen or a garage. People have every right to launch home-based businesses, whatever size they eventually achieve, in their individual quests for income, satisfaction, and independence.