Real estate agents warmly greet potential buyers at an open house in West Hempstead, New York on April 18, 2021.
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The Impact of PPP Loan Fraud on Home Prices
According to the Federal Reserve Bank of San Francisco, U.S. home prices experienced a significant 24% increase between November 2019 and November 2021. This surge was driven by various factors, such as changing demand and relocations. However, recent research suggests that government aid, specifically the Paycheck Protection Program (PPP) loans, may have also played a role in this growth. Certain regions with higher rates of fraudulent PPP loans experienced inflated home prices.
“This is a very specific type of stimulus that injected cash into certain areas, and it seems to have played a pretty significant role.”
– Sam Kruger, Assistant Professor of Finance at the University of Texas at Austin
The research findings indicate that markets with higher rates of PPP loan fraud experienced greater home price growth. Individuals who received fraudulent loans were more likely to have purchased property, amplifying the impact of this specific stimulus. ZIP codes with high instances of suspicious lending per capita exhibited home price growth that was 5.7% higher compared to ZIP codes with lower fraud rates in the same county. The co-authors of the study emphasized that this effect was substantial compared to other factors proposed to explain housing price growth during the Covid period.
The research accounted for various factors, including land supply, previous home price growth, accessibility to remote work, population density, net migration, proximity to the central business district, and previous rates of remote work. Despite controlling for these factors, the findings consistently revealed the impact of PPP loan fraud on home prices. Sam Kruger, an Assistant Professor of Finance at the University of Texas at Austin, emphasized that the consequences of PPP loan fraud extend beyond stealing from the government. Distortions and spillover effects can adversely affect the community as a whole.
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