Let Us Have Lemonade

Legalizing Home-based Businesses to Make the Most of Summer

The picture plays out every summer. Sweltering heat sets in, the whir of air conditioning units revs up in kind. Pools, playgrounds and parks buzz with activity. And along the highways and byways, businesses cater to throngs of customers set on enjoying the fruits of the season.

Not everyone is so fortunate, however. American zoning has a century-old history of segregating commercial and residential uses in different parts of town. In most places, homeowners who want to sell something to their neighbors face a gauntlet of laws, permits, and inspections that cost money to comply with and sap the will of would-be entrepreneurs. In fact, stories about city crackdowns on lemonade stands are common enough for Country Time Lemonade brand to promise legal aid to affected children.

Rules that bind home-based businesses and other neighborhood retailers are a result of efforts to tame nuisances that commercial activity causes for nearby homes. Light, noise, traffic, and extra competition for parking all bother people accustomed to residential areas that don’t see much commerce. On one level, this makes sense: Mitigating nuisances is why we use zoning to separate uses. Yet on another level, using zoning laws to engage in prior restraint of commercial activity is a blunt tool that blocks mundane, low-cost ventures by citizens who produce something of value for their neighbors.

There are three primary ways towns regulate commercial activity in residential areas. The primary tool involves direct restrictions on how residential properties may be used for commerce. These use restrictions explicitly spell out which types of commercial activity is allowed or disallowed in any given type of residential zone. A second category of laws regulates how homes may be used via business permitting rules. The third and least-direct category of rules adds limits and mandates related to the physical characteristics of home-based businesses to the regulatory burden that these businesses already face.

With the various ways to restrict home-based businesses on the books, reform-minded towns have an assortment of options available to them in their efforts to open neighborhoods to more small-time entrepreneurs.

In towns where residential zones allow little to no commercial activity, expanding the list of allowed uses is a necessary, if not sufficient, first step. This doesn’t need to mean allowing full-sized grocery stores on every corner, but it could mean allowing businesses in some generally-acceptable categories to operate. Home-based day care centers are one common example. In fact, many neighbors may cheer about having storefronts of dentists, barbers, and doctors within a short walk of their homes.

Small-time retailers struggle in towns with laws that mandate business permits, even though many of the activities they perform are incidental to the primary use of the residential property, earn limited amounts of revenue, and serve as an outlet for hobbyists and new entrepreneurs. Residential areas typically allow limited types of business activity incidental to a home’s primary function as a dwelling, but only if the activity does not change how the property looks and functions to the public. This type of provision ensures that activities like working remotely from home are legal. Expanding incidental use rules to include small-scale home-based retail activity would build on this practice to legalize a broader subset of neighborhood commerce, making things easier on these home-based retailers.

In some towns, however, expanding allowed and incidental use laws won’t be enough. Many zoning codes include rules that prevent home-based businesses that generate more traffic, require added parking or on-site storage, or have need for new lights and signs. Each of these rules can mean the difference between a legal small business and a prohibitively costly variance battle. A review of these rules with an eye toward repealing the most burdensome among them would make starting home-based businesses less risky.

One of the best parts of summer is the awakening of small-time seasonal retailers. Lemonade stands, yes, but also farm stalls and folks selling wood for fires. Legalizing these activities may bother some, but the vibrancy that home-based businesses bring to the neighborhood would certainly have benefits that offset these minor harms.

Of course, that’s just my take. Now get off your computer and go back to enjoying the season! (Maybe buy something delicious from the kid down the street on the way home.)

Nick Zaiac is a Catalyst Policy Fellow and a Fellow in Commercial Freedom at the R Street Institute where his portfolio includes housing, postal and transportation issues. He holds a master's degree in economics from George Mason University. He lives in Washington, DC with his wife, Ali.
Catalyst articles by Nick Zaiac