Pandemic relief funds accidentally broke the housing market by helping scammers inflate local home prices nearly 6%, study finds

Anyone on the market for a new house over the past six years has had rotten luck. Between 2020 and 2022, the median sale price for a home rose nearly 40%, and it has barely tapered off since then. Many prospective homebuyers would say they’ve felt cheated out of this housing market, and a new study says they might have a point.

The housing market ended up bearing a disproportionate cost from successful scammers who filed fraudulent claims filed under the Paycheck Protection Program (PPP). Homebuyers in 2020 and 2021 had to compete with fraudulent recipients of PPP funds who effectively treated the cash as an artificial stimulus and used it for discretionary spending, leaving every competing U.S. homebuyer on the hook.

According to a study by researchers at the University of Texas at Austin, published this week in the Journal of Financial Economics, about $800 billion in small business relief loans, known colloquially as the PPP loans, was doled out during the pandemic’s early days, and some of those funds were used in fraudulent ways.

“In a horse race, pandemic fraud is one of the largest and most robust factors explaining house price appreciation during COVID,” the study’s authors wrote.

Areas where PPP fraud was rampant in the first years of the pandemic could expect home prices 5.8% higher on average relative to comparable markets with less grifting. 

Several factors have pushed up........

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