III. The Race to Regulate

Regulators have reacted to the rise of home-sharing and home-based businesses by creating swaths of rules that seek to limit or prohibit the practices altogether. Home-sharing has simply been banned in several cities. Santa Monica, California, recently banned any rentals under 30 days in duration. The law is a serious burden on people like Arlene Rosenblatt, who would like to offer visitors an affordable alternative to local high-priced hotels. Prior to the law’s passage, Arlene had been renting out her home for $350 per night when she and her spouse traveled. Now if she wants to rent out her home, she’ll have to do so for at least a month at a time.

Even where cities haven’t banned home-sharing, they sometimes enforce draconian rules that have most of the impact of a ban in practice. Fort Lauderdale, Florida, for example, limits occupancy, requires initial and ongoing annual property inspections, imposes minimum parking requirements, and requires an owner or manager to reside within 25 miles of the property. San Francisco, California, forces applicants for short-term rental licenses to submit to an in-person appointment, limits those licenses to San Francisco residents, permits only one property per licensee, caps non-hosted stays at 90 days per year, and requires $500,000 in liability insurance, among other rules. In New York City, no non-hosted short-term rentals are allowed. The owner must stay in the home alongside the guests, and no key locks are allowed on any internal doors. Some of these laws, like getting a license or obtaining insurance, may seem independently justifiable. But the cumulative impact of these rules is to create a regulatory thicket that is simply too much for most people to navigate. Many homeowners will forgo short term rentals altogether rather than try to comply with numerous and expensive regulations.

The fines for violating the labyrinth of home-sharing restrictions can be disastrous. In 2016, Miami Beach passed an ordinance that imposed fines of up to $100,000 per day. 3 At one point, the city even considered imprisoning homeowners for violating the ban. Officials in Kauai County, Hawaii have levied fines of $10,000 per day against people who simply rented out a room in their home.

Other regulatory responses effectively require a person to surrender some of their constitutional rights in order to share a home, such as the right to privacy or the right to be free from unreasonable government surveillance. For example, the city of Chicago passed an ordinance requiring those who rented out their homes to be open to inspection by government officials “at any time and in any manner” without probable cause or a warrant.4 New York City formally required Airbnb and other home-sharing websites to disclose the names and addresses of their hosts, until a federal judge blocked officials from enforcing that measure. The judge ruled that the “governmental appropriation of private business records on such a scale, unsupported by individualized suspicion or any tailored justification” was an unreasonable search and seizure.

Home-based businesses have also been thrown into jeopardy by regulation. Vague zoning laws often leave homeowners with little guidance about whether their desired business is permitted or verboten. For example, many statutes say that a home-based business is permissible if it is “customary,” or if it is “incidental” to the residential use, but because they do not define those terms with any specificity, homeowners must guess at whether their business is legal. Where statutes offer a list of permitted occupations, they are sometimes outdated – as evidenced by the numerous restrictions specifically allowing the home-based business of “millinery” (hat-making), a business model that had its heyday in America a century ago.

Other cities impose regulations that make it practically impossible to have a home-based business. Some cities prohibit any sales at a residential property, making it illegal to sell crafts on Etsy or collectibles on eBay. Others strictly limit the number of “customers” that may be present in your home (even though homeowners are allowed to have an unlimited number of “guests” for non-economic purposes, and even though homeowners are allowed to perform all manner of services for any number of friends or family for free). Portland forces home-based businesses, including tutors and hairstylists, to choose between having one employee come to the house or a limited number of customers per day – and requires every single customer to make an appointment prior to appearance. Businesses can have no more than one vehicle up to the size of a medium pick-up truck associated with the home business.

In Nashville and San Francisco, it is illegal to have even just one person or “customer” in one’s home for a business purpose. Those who want to cut hair, teach violin, or tutor schoolchildren must violate local law to pursue their occupation.5

Stories of entrepreneurs being thwarted by onerous regulations abound. After neighbors complained about a small yoga studio, the city of Phoenix, Arizona shut down Angie Hall’s backyard business.6 Officials in Cobb County, Ga., went so far as to shut down a videogame blogger, even though his only “business activity” was playing video games and uploading clips of his gameplay to YouTube. The city of Nashville threatened to seize property from a local record producer because he ran a recording studio out of his garage.

Kim O’Neil, owner of a medical billing company in Chandler, AZ, was similarly shut down by onerous regulation. Kim moved her medical-billing company to her home shortly after her father became ill. Working from home allowed Kim to care for her father and to tend to her two children – something that would have been impossible if she worked from a brick-and-mortar office. Even though the business had no signage, no visiting customers, no commercial equipment, and no on-site sales, city representatives notified her that she would have to build a parking facility, submit architectural drawings of her home, and obtain approval from every neighbor within 600 feet in order to continue working out of her home. Facing high compliance costs, Kim was forced to shut the business down.

While laws that regulate the use of one’s home are couched in terms of protecting the public, they are frequently motivated by “not-in-my-backyard” (NIMBY) attitudes or protectionism. There’s no doubt that Sacramento auto shops benefit from the city’s ban on even minor automotive work in one’s garage for money.

Not unlike the taxi industry’s efforts to stop the growth of Uber, or the restaurant industry’s attempts to regulate away food trucks, the hospitality industry has acted swiftly to stifle competition from homeowners on home-sharing platforms. It was the unlikely duo of hotel companies and labor unions that teamed up to pass New York’s short-term rental restrictions. While New Orleans prohibits property owners from renting their homes to anyone for less than 30 days in most of the city, it increases the minimum number of nights to 60 in the French Quarter. The obvious explanation for singling out the French Quarter is that it’s the hospitality epicenter of the city. Whatever the intention, whether protectionist or paternalistic, laws affecting home-sharing and home-based businesses are banishing two important ways that people are reasonably, and productively, using their homes.