New Jersey Moves to Deregulate Home-Based Businesses

The New Jersey state legislature advanced legislation this June that would give entrepreneurs more freedom to open a business cheaply. As South Jersey-focused publication 70 and 73 reports, the Home Business Job Creation Act, which still awaits state senate approval, would allow homeowners to operate a business from their own home by-right, without approval from municipal zoning authorities. The change mirrors a trend towards online commerce and is a welcome reexamination of strict use separation rules that prevent entrepreneurship nationwide.

Allowing business owners to operate from their homes would help save money and lower entry barriers. In Jersey City, Class C retail space rents are in the ballpark of $40 per square foot annually, based on LoopNet listings. This works out to at least $40,000 (and often much more) in yearly rent for ground-level storefronts in the state’s many urban neighborhoods.

Nationally, prices for Class C retail tend to be much lower (in the $10-20 per square foot annual range). But the point still stands: if you’re an upstart entrepreneur who can’t afford 5-figure rent and live in a city that bans home-based businesses, you’re out of luck. 

The proposed New Jersey reform would not only help entrepreneurs, but could also make neighborhoods more walkable and mixed-use, serving much of the same need as accessory commercial units. In New Jersey itself, the format harkens back to older land-use styles, where the state’s charming urban cores, such as Union City and Hoboken, are replete with apartments near businesses.

The law’s authors, Assembly members Jay Weber, Robert Auth, John DiMaio, and Dawn Fantasia, point out that numerous businesses in the state would be forbidden under strict enforcement of current laws. Carveouts exist for businesses like doctor’s offices and accounting services, but the more workaday enterprises are beholden to municipal regulations. Perhaps unsurprisingly, the New Jersey State League of Municipalities is fighting the law on the grounds that it undermines local control. 

Many jurisdictions heavily regulate or outright ban home-based businesses on the premise that they create externalities such as traffic congestion or are difficult to regulate safety-wise. According to 70 and 73, New Jersey’s bill will include similar stipulations. 

Such criticisms often do not pass muster. Home-based businesses have become more logistically easy with the rise of service-based apps and websites that allow small-scale businesses to connect with a broader customer base. For example, Etsy, a crafts sales platform, saw its membership increase by over 4 million from 2019 to 2021. Rather than drawing customers to their homes, Etsy merchants ship their products outward (or often drop-ship from a 3rd-party location). So the traffic caused is minimal compared to what craftsmen would’ve drawn 20 years ago. 

Since the pandemic, food businesses have also emerged. Readers might be familiar with “ghost kitchens,” a franchise-like business model where a distributor like WoodSpoon and Shef allow users to sell meals directly to consumers. Its membership has also grown significantly. 

But New York and other states forbid its use for hot food delivery. Generally, according to the Institute for Justice, hot food businesses operating from people’s homes are tightly regulated, if not banned, on safety grounds. Even pre-prepared food is scrutinized: Rhode Island made barely any allowance for home food sales until late 2022. Georgia had similar restrictions, requiring anyone who wanted to sell food to do so in a certified commercial kitchen. 

The Institute for Justice conducted a review of the states with the most permissive home-based food rules, including Wyoming, Montana, and North Dakota, which do not require special permitting for such business, and found that “not a single state had a confirmed case of a foodborne illness caused by food sold under its homemade food law.”

What’s more, the proscription of such businesses does not guarantee that food sales will be safer, as banning them may just drive them onto the illegal market, where no oversight exists. There isn’t any particular reason why appropriate health and safety regulations cannot apply to home-based businesses.

Beyond food, other businesses have faced scrutiny from regulators. In Nashville, a joint hair salon and recording studio was shut down because both businesses relied on in-person visits. Childcare services have often run afoul of zoning regulations, motivating reform in several states.

The inherent tradeoff here—if we’re to conclude that many of the “safety” concerns are just a disingenuous smokescreen—is about traffic. Even if home-based businesses are “online” now, they’ll still inevitably cause more parking and congestion than if homes were strictly residential. The upside is that more small-scale entrepreneurs can afford their shot at growing a successful business. 

Hopefully, the New Jersey Senate will see the positives and pass the bill. It will only be an early step towards broader liberalization, but it will unlock opportunities for many people. 

“My whole life, people told me, ‘You need to do something with your food,’ but I always shut myself down without even trying,” one user of WoodSpoon told the New York Times. “Now I have weekly income.”

This article featured additional reporting from Market Urbanist content staffer Ethan Finlan.

Cover image authorized under the Creative Commons Attribution 2.0 Generic License.