regulatory barriers to starting new daycares (& some low hanging fruit fixes)

part 2 of a series on solving the childcare crisis in america

My last piece dove into why existing childcare centers have so few infant classrooms.

But why aren’t new daycares being started to meet demand?

This piece focuses on regulatory barriers to starting licensed childcare and proposes low hanging fruit fixes.

Types of daycares

There are two types of licensed childcare in the US and across the commonwealth:

1. Childcare centers: Centers are run in ground floor commercial spaces and have capacity for 12+ children, often across multiple classrooms.

2. Family childcare (or in-home childcare): Daycares are run in a teacher’s home, and in most states limited to ~6 (small license) or 12 children (large license).

How childcare center regulations restrict supply

Childcare centers have a host of safety & use of space regulations, from requirements around child height toilets, to education requirements for teachers & administrators, to child: teacher ratios, and more. These are all well-intentioned and designed to create a floor of quality & protect child safety.

However, these are very old regulations, and one rule is especially restrictive to supply in cities: outdoor space per child.

Here are the five states in the US with the most children. Each of them requires outdoor space per child contiguous with the daycare lease:

The intent of outdoor space ratios is positive — children need to be able to run around, climb things, get fresh air, and play for healthy development (gross motor skills).

Yet, in many cities, its almost impossible to find 75 square feet of outdoor space per child contiguous with retail leases, even when there is distressed ground floor commercial real estate post COVID.

For example, in San Francisco, a quick search on LoopNet today reveals 161 retail spaces between 1000 - 4000 square feet. 0 (!!) meet the 75 square foot of outdoor space per child requirement.

Outdoor space mandates are especially restrictive for infant daycare supply (where the waitlists can be up to 2 years long), a developmental period when children mostly do stroller walks and tummy time instead of full running around & playground structures.

There is another solution. In many of the biggest cities in America, there is relatively abundant park & playground space that is underutilized during weekdays. In San Francisco in 1980, there were ~100 playgrounds, and today there are >180 playgrounds.

5 largest cities in California with proximity to playground

Here are a few potential tweaks to increase the supply of leases for childcare centers while still allowing kids to meet healthy developmental gross motor needs:

• Make the outdoor space mandate more flexible, allowing childcare centers to license local park & playground space & use spaces like rooftops without requiring special exemptions

  • For safety purposes, centers could pay into a fund to help the city build fencing around any unfenced public playgrounds and traffic guards to help kids cross the street

• Expand infant supply by creating outdoor space exemptions for infant childcare centers

• In cities like San Francisco, make it easier to re-zone spaces for commercial daycare (and help save the distressed downtown!)

• Lower space restrictions: California lowering its 75 square feet down to 50 feet in keeping with Texas / Florida, or making it more flexible like New York.

How family childcares are restricted

Family childcare (or in-home daycare) is daycare in someone’s home. Often, a stay-at-home parent or former educator finds they can serve a couple of extra kids from the neighborhood on weekdays while they are caring for their own child.

Jackson Family Daycare in Seattle

Over the past 15 years, licensed family childcare providers have been on the decline, without being replaced by new ones.

US Dept of Health & Human Services Office of Childcare, 2019

Family childcares work in either rented or owned residences, as long as the provider lives in the space and provides the care.

The first constraint is general — how expensive housing is. Given that the price of housing has gone up a lot the past few decades, especially in cities, there are fewer providers who can afford to rent or own homes to start family childcares. And the more expensive the rent / mortgage, the more expensive the tuition. We need to build more housing & subsidize more affordable housing to reduce housing prices.

The second constraint in renting new spaces for family childcare is “daycare NIMBY-ism.” In almost all states, standard apartment leases prohibit business uses of property, including family childcares. Condos, which have home owner associations (HOAs) share these same leases and add even more restrictions in their HOA bylaws.

These rules arise from a fear of noise, extra traffic, and lowering property values. However, with only a few kids family childcare is much closer to a large family than anything close to a commercial daycare.

When Tinycare was expanding in Phoenix, Arizona in 2022, the first 30 apartments and condos we looked at rejected us due to the above two restrictions. California actually has a first-in-the-nation regulation where family childcare use trumps local lease / HOA restrictions, and more states like Arizona could follow suit.

A third constraint on family childcare supply is hard caps on the number of children in a given space regardless of how many teachers there are.

Regulatory limits on children for family childcares across many states

For example, in California, a small family childcare license allows up to 6 children (OR four infants (under the age of two)) for one caregiver.

However, this 6 child limit isn’t at all tied to the size of the residential space (e.g. a 250 square foot studio has the same child cap as a 2000 square foot space), or to the number of caregivers (you can’t have more kids with more caregivers).

Compare California to Washington State, which allows the provider to serve up to 12 kids for a small family childcare if there is a second caregiver.

If California, New York, Illinois, and other states with hard 6 child caps allowed more kids with a second caregiver or a larger space, that would increase the margins of small family childcare and thus incentivize more new infant family childcares.

Given that nearly 30% of America’s infants & toddlers are cared for in family childcare, more than twice the number that are cared for in childcare centers (11.9%), and childcare waitlists are especially high for 0-2 care, changes here are hugely impactful for children & families.

A summary of potential solutions to unlock family childcare supply:

• Pass state laws that exempt family childcare providers from housing discrimination in rentals, trumping local leases and HOA laws

  • States could copy California’s Health and Safety Code Section 1597.41(a)-(c), which prohibits any restriction on the use of rental property for family child care, preventing landlords or HOAs from blocking it.

• Reform the number of kids for small family childcare center licenses in more restrictive states like California, New York, and DC allowing more childcare if there is a second caregiver. This would help expand infant care spots.

  • For example, California could increase the number of infants from four to six, provided there is a second trained caregiver.

• Overall - build more housing & fund more affordable housing!

We need childcare regulatory modernization

The first childcare licensing laws were written in the early 20th century, a very different time.

Since then, female workforce participation rate has more than doubled since the 1920s, and demand for childcare has followed suit.

In the meantime, urbanization has continued to climb. Childcare regulations that may have worked in more rural areas no longer work in high density cities.

Unless and until we ever see widespread job automation from AI 🙃, leaving more parents free to be home with their children, we need to modernize daycare regulation to increase family & children access to quality, abundant childcare.