The home-valuation industry has become the federal government’s latest target for a massive and unjustified power grab. Unless stopped, the government, not markets, will set home prices, which could have catastrophic consequences.

To justify its takeover, the government is trying to scapegoat the appraisal industry—which is 97% white, 70% male and not well-organized—for having caused large disparities in racial wealth and homeownership. Cue last week’s report from the Interagency Task Force on Property Appraisal and Valuation Equity, or PAVE, led by Housing and Urban Development Secretary Marcia Fudge and the director of the president’s Domestic Policy Council, Susan Rice, which asserted the existence of “inequities within current home lending and appraisal processes” for communities of color.

The government’s case is unsubstantiated. The PAVE report relied on three pieces of research. The first one was a blog post by the Federal Housing Finance Agency, which quoted 16 examples of racially charged language out of millions of appraiser reports but refused to disclose the total number of occurrences. The second was what Freddie Mac—one of the two mortgage giants—called “exploratory research” that was later directly contradicted by a report from the other giant, Fannie Mae. The third was a report by the Brookings Institution, which boldly claimed that 23 variables could completely account for all possible non-race-based factors affecting a home’s value. This left only racial bias as the explanation for the remaining value differences between white and black neighborhoods, which research we did for the American Enterprise Institute thoroughly discredits.

PAVE’s blatant disregard of pertinent research, use of cherry-picked data and discredited research lead it to flawed conclusions. This suggests either a lack of interest in getting to the truth or, more likely, that the report is only a pretext for centralizing valuation regulation under a new Federal Valuation Agency.

What comes next shouldn’t surprise anyone. On Tuesday, less than a week after the PAVE report’s release, the House Financial Services Committee will hold a hearing on the proposed Fair Appraisal and Inequity Reform Act, which would hand over the nation’s entire home valuation process to this new agency.

More-rigorous research shows that rather than being the fault of the appraisal industry, the racial homeownership disparity exists because of the failure of past efforts on welfare, school quality, crime, urban renewal or public housing by the federal government to address differences in socioeconomic status. The data clearly show that Americans with higher income and who are married have higher homeownership rates regardless of race. When they were of similar socioeconomic status, black, white and Hispanic households all had similar outcomes when we replicated the Brookings and Freddie studies.

We don’t dispute a legacy of past racism and lingering racial bias, which leaves blacks at a large income and wealth disadvantage, but history shows that government attempts to solve socioeconomic gaps through housing policy often backfire.

Examples abound, but consider these two. The 1967 Presidential Task Force on Housing and Urban Development proposed a 10-year housing program to eliminate all substandard housing in the U.S. It ended up destroying many American cities through a combination of lax lending to underqualified borrowers, careless government oversight (particularly in appraisals), and predatory business arrangements between the Federal Housing Administration and lenders. In the end, these actions wreaked havoc on black households and neighborhoods.

Or consider HUD’s 1995 National Homeownership Strategy, designed to achieve a homeownership rate well in excess of any in the nation’s history. The housing boom it unleashed went bust, leading to more than 10 million foreclosures and costing taxpayers dearly. Black homeowners and neighborhoods were among the hardest hit.

If home prices were no longer determined by markets but instead by a politicized valuation process, it is easy to see how the results could exacerbate racial and ethnic disparities in wealth and homeownership. The politicization of home prices to address perceived valuation inequities could lead to misvaluations on a massive scale. The areas most affected would be minority and rural areas, where home sales generally are sparser. This could engender even larger home price peaks and troughs, ultimately hurting lower-income households, which have the least wherewithal to withstand price declines.

Unless policy makers address disparities in socioeconomic status directly, make-believe solutions won’t be enough to raise housing outcomes for minorities. Sadly, PAVE seems to have wasted yet another opportunity to improve the lives of many disadvantaged groups in any lasting way.

Mr. Pinto is an American Enterprise Institute senior fellow and director of the AEI Housing Center. Mr. Peter is an AEI research fellow and assistant director at the Housing Center.