For many Americans hoping to buy a home, the past several years have been exceptionally difficult. Between the end of 2019 and the end of 2022, the median sales price of homes in the United States rose by 35%, according to the Federal Reserve Bank of St. Louis. Although economists have largely attributed the surge to pandemic-related migration and remote work trends, new research suggests another important factor contributed significantly to the housing boom: fraud linked to government pandemic relief loans.

Researchers from the McCombs School of Business at The University of Texas at Austin found that fraudulent borrowing through the Paycheck Protection Program (PPP) accounted for roughly 22.5% of the average increase in housing prices during 2020 and 2021. The study was conducted by finance professors Samuel Kruger and John Griffin, along with doctoral student Prateek Mahajan. Their findings suggest that pandemic loan fraud affected not only taxpayers but also ordinary homebuyers who purchased properties at inflated prices.

The PPP was introduced as an emergency federal program to help small businesses survive the economic disruption caused by COVID-19. Although the government supplied the funding, banks and fintech firms were responsible for distributing the loans. In the rush to move money quickly, the program lacked sufficient safeguards to prevent fraudulent applications. Earlier work by the same researchers identified at least $117 billion in suspicious lending activity, much of it concentrated in specific geographic areas.

To understand how fraudulent borrowers used the funds, the researchers analysed housing purchases across 18,761 ZIP codes covering 93% of the U.S. population. They discovered that areas with the highest concentrations of suspected PPP fraud experienced housing price growth that was 5.8% higher than areas with the lowest fraud levels. Individuals suspected of fraudulent borrowing were also 17% more likely than average to purchase homes, particularly in regions where housing supply was already limited.

The researchers concluded that fraudulent pandemic lending had a larger effect on housing prices than other commonly cited pandemic-era factors, including migration patterns and remote work. Beyond housing, the study also found connections between PPP fraud and increased spending on automobiles, furniture, restaurants, grocery stores, and financial services. According to Kruger, many ordinary homeowners may ultimately suffer financial losses if inflated housing demand fades and property values decline.

The findings also raise broader concerns about long-term economic consequences. Griffin noted similarities with the 2008 financial crisis, when inflated housing markets contributed to widespread mortgage defaults and banking instability. The researchers argue that future government relief programs must include stronger safeguards from the beginning to reduce fraud and prevent economic distortions. Their study highlights how large-scale fraudulent transfers can ripple through the economy, affecting not only public finances but also housing affordability and financial stability.

More information: John Griffin et al, Did pandemic relief fraud inflate house prices? Journal of Financial Economics. DOI: 10.1016/j.jfineco.2026.104275

Journal information: Journal of Financial Economics Provided by University of Texas at Austin