Housing Affordability, Tourism Activity and Income Inequality: Friends or Foes?

Previous evidence indicates that an increase in tourism is associated with both an increase in house prices, as it shifts leftwards the housing supply for domestic tenants and buyers, and an increase in income, as it generates significant positive externalities and spillover effects that stimulate job creation. The empirical evidence obtained from a panel of 38 OECD countries indicates that a rise in tourism activity, measured by either tourist arrivals or receipts, has a significant negative impact on housing affordability. Additionally, our findings suggest that this adverse effect is more pronounced in economies that rely heavily on tourism, while the impact of tourist arrivals on housing affordability is more substantial in countries with higher GINI coefficient (income inequality) and higher homeownership rates (non-financial wealth inequality). More specifically, the interaction of income and wealth inequality with tourism activity magnifies the positive impact of tourism on housing affordability. Our results remain unaffected by a battery of robustness checks and alternative specifications, providing important socio-economic policy implications.