Housing wealth, mortgage debt, and tourism demand : navigating urban-rural institutional divides and financial constraints in the context of China

Abstract

The relationship between housing markets and tourism demand involves a tension between the stimulating "wealth effect" and the constraining "crowding-out effect" of mortgage debt. Crucially, this dynamic depends on institutional environment. Using China Family Panel Studies data (2014–2020) and the Exact Affine Stone Index demand system, this study analyzes how this tension varies across China's urban-rural institutional divide. Findings reveal stark institutional disparities. Urban housing wealth (characterized by high liquidity) significantly boosts tourism's budget share; this effect is muted and conditional for rural households (characterized by illiquid assets). Crucially, mortgage debt exerts a potent crowding-out effect, dampening tourism spending as income rises. Urban tourism demand follows complex income patterns and is price-elastic, while rural tourism grows proportionally with income and is inelastic. Results underscore the need to integrate institutional context and financial constraints alongside wealth when analyzing discretionary consumption like tourism in rapidly evolving economies.