I'm going to be running with this business model in the next few months, although I'm not a freelance designer I am planning on outsourcing some simple work for cheap and concentrating on getting the hosting customers in.
The going rate for business web site hosting is variable. It's what you can get away with to some extent, if they don't mind paying $29 then charge that. Yes they might go with someone else, but if they aren't smart enough to get the hosting themselves in the first place then they probably won't. I'll probably be charging around $20/month for my service because I can.
And as you said, that's good residual income that's being left on the table there.