Improving human settlements serves as a significant engine for expanding domestic demand, effectively stimulating consumption, boosting investment, and injecting new momentum into economic growth. Based on a two-way fixed effects model and the Spatial Durbin Model, this paper systematically evaluates the impact of human settlements on expanding domestic demand and its spatial effects. Analyzing panel data from 276 Chinese prefecture-level and above cities (2011–2023), we find that a one-unit improvement in the human settlements significantly increases resident consumption by 5.683 %, social investment by 9.734 %, and government consumption by 1.816 %, indicating that upgrading the human settlements is an effective pathway for expanding domestic demand. Mechanism analysis reveals that the human settlements indirectly boosts domestic demand through population agglomeration and employment promotion, further verifying the existence of scale effects, agglomeration effects, and income effects. Heterogeneity analysis reveals that the positive effect of the human settlements on domestic demand is stronger in three types of cities: underdeveloped ones, those in early urbanization stages, and non-central cities. Spatial econometric results indicate that improvements in the local human settlements not only directly promote local domestic demand but also generate positive spatial spillovers to neighboring cities, while indirect effects even surpassing direct effects. Additionally, improvements in the living environment can promote an upgrade in domestic demand by influencing the structure and level of residents’ consumption. The policy implications of this paper are as follows: systematic development of the human settlements should be continuously advanced, strengthening its fundamental roles in expanding domestic demand; special attention should be paid to the mediating effects of population agglomeration and employment promotion to enhance residents' consumption capacity and the vitality of social investment; differentiated policies should be implemented to promote regionally coordinated development based on local conditions, fully unleashing the spatial spillover potential of human settlements.
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