Why Are Homes So Expensive? Some Of The Blame Goes To Scammers, Study Finds

Key Takeaways

• People who scammed the pandemic-era Paycheck Protection Program and other relief programs used the cash to bid up the price of homes, cars, and other goods, new research finds.
• Home prices rose about 26% over 2020 and 2021, and relief program fraud is among the bigger factors for the rise in housing prices.

If you were in the market for a house around Henderson, Nevada, in June 2020, you were often bidding against buyers in a frenzied housing market where prices were surging. One of your rivals might have been a small-business owner named Brandon Casutt, who, according to court records, had recently received about $500,000 from government pandemic relief programs.

Lawmakers hastily created the Paycheck Protection Program (PPP) shortly after the pandemic hit, ultimately disbursing about $793 billion to stabilize household finances and the economy. The priority was getting money out the door quickly with minimal red tape, and many obtained funds with little scrutiny.

On paper, Casutt was just the kind of person the government meant to help. His business, Sky DeSign, and his charity, Skyler's CF Foundation, needed the money to pay their employees during the lockdowns. And indeed, shortly after receiving the money, Casutt did write checks to dozens of people for "pandemic pay" and "back pay" in the memo.

But the checks didn't go to locked-down employees; they went to Casutt's family and friends, according to federal prosecutors. He ultimately used the funds to buy a $400,000 house. He pleaded guilty to fraud and money laundering and was sentenced to two years in prison in 2023.

Researchers now say cases like this, repeated across the country, were among the reasons home prices shot up during the pandemic, and those increases are still affecting buyers and homeowners today. According to the analysis, fraud was among the largest drivers of home-price growth, alongside limited land availability. It even outweighed a home's suitability for remote work.

Why This Matters

The findings suggest that fraud was an underappreciated driver of pandemic-era inflation.

Fraud in the PPP, unemployment insurance, and other relief programs distorted housing markets enough to account for 22.5% of the home-price increase over 2020 and 2021, the researchers at the University of Texas at Austin found. Finance professors John Griffin and Samuel Kruger, with doctoral student Prateek Mahajan, reported the finding in a paper forthcoming in the Journal of Financial Economics.

In a 2023 paper, the same team estimated the PPP lost $117.3 billion, or about 15% of the money spent through the program, to fraud. They measured the effect by comparing price changes in areas suspected of high levels of PPP fraud with those in areas with low levels. Prices rose faster in high-fraud areas, even after controlling for other factors.

Major consumer purchases also increased in high-fraud areas, suggesting the fraud may have fed inflation more broadly. The researchers found that PPP fraud led to a 2.8% increase in auto title registrations.

In this way, PPP fraudsters harmed not only the taxpayers they stole from but also homebuyers and potentially all other consumers, who paid higher prices than they should have.

The effects are still being felt.

"If you're just a regular homeowner, and you happen to purchase in one of those areas in 2021 or 2022, you probably purchased at an inflated price," Kruger told the McCombs School of Business newsletter. "As that excess demand comes off the market, you're going to expect to lose money on the house."