UT researchers say PPP loan fraud inflated home prices

Were you priced out of the housing market in the last few years? University of Texas at Austin researchers say you can thank the crooks that took out fraudulent PPP loans and other pandemic relief money.

Home prices shot up about 24% in 2020 and 2021, according to the Federal Reserve, driven by cash buyers, investors, and people wanting new houses now that they could work remotely from anywhere.

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But that's not all. University of Texas at Austin researchers John M. Griffin, Samuel Kruger, and Prateek Mahajan, found it was also due to PPP loan fraud.

"If you look at the zip codes that have the highest decile of PPP fraud, and compare those to zip codes with the lowest decile, there’s something like a six percentage point difference in their house prices," explained Dr. Sam Kruger, Assistant Professor of Finance at the University of Texas at Austin McCombs School of Business.

The Federal government issued $793 billion in Paycheck Protection Program loans to help businesses pay employees and stay afloat after the COVID-19 shutdown. But the UT researchers report 14% of that, $117 billion, was flagged as suspicious.

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"It’s quite clear, at least some of the people that received these fraudulent funds, turned around and used that money to buy things like luxury houses and luxury automobiles," said Kruger.  

They report that in areas with high levels of PPP loan fraud, such as Chicago, New Orleans, and Atlanta, where fraud rates approached 30%, home prices were 5.7% higher than in areas with low levels of fraud. Houston was not far behind.  

"Compared to all that, Houston is coming out about 20% to 25%. For Texas, it was one of the areas that had the highest rates of PPP fraud," said Kruger.

The researchers say it wasn't just PPP loan fraud. They say those same areas also had high levels of fraud in unemployment benefits and other pandemic relief.  

But as the government has been prosecuting fraudulent cases, could claw backs of that cash help bring home prices back down?

"The sad fact of the matter is that of the hundreds of billions of dollars that were stolen, we’re unlikely to get back very much of that," said Kruger.