I get this often, so I tell them that I had to spend money to get where I am today with the gear I have. If they think that it is cheap to get what it takes to make a great sounding product, then they should go out and price the gear. They should realize that it is cheaper to pay you for your services than it would be for them to buy their own studio. Often they will decide if they are good enough to spend the money on themselves. Unless you think they have some great talent, I don't think you would want to waste your time recording music that the musicians themselves don't have enough confidence to invest their own money into.
Another reason to charge people for recording time is to reduce the hours spent in the studio. If a band knows they are charged for the time they spend in the studio, then they will be a bit more professional about what they are doing. Often if they have no time limits, they might end up goofing off and not taking your time too seriously. You also might have the other extreme, a band might get too picky about what you are doing, or just too demanding. I don't mind doing things right, but for a free session it will get old quick. In this business "Time is Money". Even if your studio is just a hobby, do it in a way that it is enjoyable, and if not that, a little profitable.
I think $25/hr is fair price for home studios. You can always reduce it for those SPECIAL friends with Lots'O'Talent if they can't afford your regular price. If they are talented enough, you might barter studio time for their talent. Never know when you'll need a good banjo player.
[This message has been edited by Fishmed (edited 11-29-1999).]