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Why landlording could be the next great small business opportunity

Justin Sullivan/Getty Images

Everyone knows that "the rent is too damn high" in rich coastal cities like New York and San Francisco. And these days most people recognize that regulatory supply constraints — NIMBY activists and snob zoning rules — are a huge part of the problem. But the finance blog Sober Look makes the point that over the past year a rental housing squeeze has descended on huge swaths of the country where the economic and legal framework is very different. This is going to be a huge financial challenge for lots of people, but it also presents a real business opportunity.

It looks like there's money to be made rehabbing or building homes in all kinds of unfashionable Midwestern markets.

Homeownership has tumbled since the Great Crash:

St Louis Federal Reserve

Consequently, the rental vacancy rate hasn't been this low in 20 years:

St Louis Federal Reserve

This isn't just a question of a handful of overheated markets. Wisconsin hasn't seen a vacancy rate this low since 1994:

St Louis Federal Reserve

Michigan hasn't been this low since 1993:

St Louis Federal Reserve

The pessimistic view of this, offered by Nick Timiraos of the Wall Street Journal, is that "Last decade’s housing crisis could give way to a new one in which many families lack the incomes or savings needed to buy homes, creating a surge of renters and a shortage of affordable housing."

But while this dystopian scenario may arise in zoned-out coastal metropolises, there's no reason it should come to pass nationwide. For Michigan, Wisconsin, Ohio, and other low-vacancy areas that are far from built out, these trends simply mean there's a brand new small business opportunity on the horizon: building new houses or rehabbing old ones and operating them as rentals.