A Strange Reason Home Prices Rose? PPP Fraud

Study: In some U.S. ZIP codes, Paycheck Protection Program (PPP) fraud was so prevalent that housing prices rose 5.7 percentage points more than in low-fraud areas.

NEW YORK – Researchers at the University of Texas have concluded that fraud related to the Paycheck Protection Program (PPP) was widespread enough to increase real estate prices within certain U.S. ZIP Codes: 5.7 percentage points higher than in comparable low-fraud ZIP Codes in the same county, even when controlling for a range of other possible factors.

Researchers at the University of Texas at Austin’s McCombs School of Business released the report on June 22.

Why the impact on home prices?

The research finds people who received fraudulent PPP loans were significantly more likely to purchase a home during the program than those who got the money legitimately – and that ultimately drove up home prices for everyone around them.

Fraud also had an impact on inflation even when the researchers controlled for other factors, including land supply, prior house price growth, the ability for residents to work remotely, population density, net migration, distance to central business district, and previous rates of remote work.

The government used traditional banks as a conduit for money but also turned to fintechs (financial technology, which includes a range of options) after industry groups said they could speed up the process. But the paper said some fintech companies appeared to take a relaxed approach to controls.

The pandemic fraud was a “transitory and temporary demand shock,” the researchers concluded, meaning that house prices in the areas more affected by fraud-related inflation are also likely to experience faster depreciation.

Source: Wall Street Journal (06/22/23) Vanderford, Richard

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