Price-to-Rent Ratio: How to Calculate It and What It Tells You
Short answer
The price-to-rent ratio is a home's price divided by a year's rent for a comparable home. A ratio below about 15 tends to favour buying and above about 20–25 tends to favour renting, but mortgage rates, taxes and price growth can override it. In our market defaults, ratios range from 12.5 in South Africa to 40 in Switzerland.
Key takeaways
- Formula: price Ă· (monthly rent Ă— 12). A $420,000 home renting for $2,100 a month has a ratio of 16.7.
- Gross rental yield is the inverse: annual rent Ă· price. A ratio of 20 equals a 5% gross yield.
- Rough bands: under 15 leans buy, 15–20 is a judgement call, above 20–25 leans rent.
- Interest rates matter: Singapore's defaults favour buying at a ratio of 27.8 because the mortgage rate is 2.8%.
- Use the ratio as a first screen, then run a full rent vs buy calculation.
What is the price-to-rent ratio?
The price-to-rent ratio is the price of a home divided by the annual rent for a comparable home. It tells you how many years of rent it would take to equal the purchase price. A low ratio, under about 15, generally favours buying; a high ratio, above about 20 to 25, generally favours renting. It is the fastest way to compare rent prices vs house prices in any market, and the price to rent ratio is often called the rent vs buy ratio for that reason.
Because it uses only two numbers, the ratio is quick to calculate and easy to compare across cities and countries. Its simplicity is also its weakness, as we show below.
The price-to-rent ratio formula
Price-to-rent ratio = home price Ă· (monthly rent Ă— 12)
Example: a $420,000 US home that would rent for $2,100 a month.
- Annual rent: $2,100 Ă— 12 = $25,200
- Ratio: $420,000 Ă· $25,200 = 16.7
It would take 16.7 years of today’s rent to equal the price.
Gross rental yield is the same idea upside down
Gross rental yield = (monthly rent Ă— 12) Ă· home price Ă— 100
For the same home: $25,200 Ă· $420,000 = 6.0%. A ratio of 20 equals a 5% yield, 25 equals 4%, and 33 equals 3%. Investors usually talk in yields; people comparing renting with owning a home usually talk in ratios. Net yield subtracts owner costs such as maintenance, tax, insurance and fees, so it is always lower than gross yield.
How to interpret the rent vs buy ratio
A widely used rule of thumb, popularised in the US, divides ratios into rough bands:
| Price-to-rent ratio | Gross yield | Usual reading |
|---|---|---|
| Under 15 | Above ~6.7% | Owning is cheap relative to renting; leans buy |
| 15–20 | ~5–6.7% | Depends on rates, costs and horizon |
| 20–25 | ~4–5% | Leans rent unless financing is cheap or growth is strong |
| Above 25 | Below ~4% | Renting usually cheaper; buyers rely on appreciation |
Treat these as approximate. They were designed with typical US mortgage rates and property taxes in mind. The fairer test is whether the rent you save by owning, the gross yield, covers the true cost of owning: mortgage interest, the return you give up on your deposit, property tax, maintenance, insurance and fees, minus expected price growth. That is the logic behind the 5% rule, which you can personalise with the 5% rule calculator.
Price-to-rent ratios in our market defaults
Below are the ratios implied by the default home price and monthly rent in our calculator for each market, sorted from lowest to highest. The final column shows which side wins after ten years using all of that market’s defaults (rates, taxes, costs and growth), with the renter investing the difference.
| Market | Default price | Default monthly rent | Price-to-rent | Gross yield | 10-year result (defaults) |
|---|---|---|---|---|---|
| South Africa | R1,800,000 | R12,000 | 12.5 | 8.0% | Rent |
| UAE (Dubai) | AED 1,800,000 | AED 10,000 | 15.0 | 6.7% | Buy |
| United States | $420,000 | $2,100 | 16.7 | 6.0% | Rent |
| Ireland | €380,000 | €1,900 | 16.7 | 6.0% | Buy |
| Mexico | MX$3,000,000 | MX$15,000 | 16.7 | 6.0% | Rent |
| New York City | $850,000 | $4,200 | 16.9 | 5.9% | Rent |
| Brazil | R$600,000 | R$2,800 | 17.9 | 5.6% | Rent |
| United Kingdom | ÂŁ290,000 | ÂŁ1,350 | 17.9 | 5.6% | Buy |
| Portugal | €300,000 | €1,300 | 19.2 | 5.2% | Buy |
| Spain | €280,000 | €1,200 | 19.4 | 5.1% | Buy |
| London | ÂŁ550,000 | ÂŁ2,300 | 19.9 | 5.0% | Buy |
| Japan (Tokyo condo) | ÂĄ55,000,000 | ÂĄ220,000 | 20.8 | 4.8% | Buy |
| Saudi Arabia | SAR 1,000,000 | SAR 4,000 | 20.8 | 4.8% | Buy |
| India | â‚ą80,00,000 | â‚ą30,000 | 22.2 | 4.5% | Rent |
| Italy | €230,000 | €850 | 22.5 | 4.4% | Rent (narrowly) |
| France | €330,000 | €1,200 | 22.9 | 4.4% | Rent |
| Netherlands | €470,000 | €1,700 | 23.0 | 4.3% | Buy |
| New Zealand | NZ$800,000 | NZ$2,690 | 24.8 | 4.0% | Rent |
| Germany | €450,000 | €1,500 | 25.0 | 4.0% | Rent |
| Canada | C$700,000 | C$2,300 | 25.4 | 3.9% | Rent |
| Sweden | 3,500,000 kr | 11,000 kr | 26.5 | 3.8% | Buy |
| Australia | A$900,000 | A$2,800 | 26.8 | 3.7% | Buy (narrowly) |
| Singapore (private condo) | S$1,500,000 | S$4,500 | 27.8 | 3.6% | Buy |
| Toronto | C$1,050,000 | C$2,700 | 32.4 | 3.1% | Rent |
| Hong Kong | HK$8,000,000 | HK$20,000 | 33.3 | 3.0% | Rent |
| Sydney | A$1,450,000 | A$3,460 | 34.9 | 2.9% | Rent |
| Switzerland | CHF 1,200,000 | CHF 2,500 | 40.0 | 2.5% | Roughly level |
These are illustrative defaults, not official statistics. Real ratios vary a lot within each country and by property type.
Why the ratio alone can mislead
The table shows the ratio is a useful guide but not a verdict. The exceptions are instructive.
Interest rates can override the ratio
- South Africa (12.5) has the lowest ratio, yet renting wins in our defaults. The mortgage rate is 10.5% and investments are assumed to earn 10%, so the cost of capital swamps the high yield.
- Singapore (27.8) and Switzerland (40.0) have high ratios, yet buying wins or ties. Mortgage rates of 2.8% and 1.6% make borrowing cheap enough to justify a low yield.
- Brazil (17.9) looks moderate, but a 12% mortgage rate and an 11% investment return tilt it firmly to renting.
A quick cross-check: compare the gross yield with the mortgage rate. Where the yield is close to or above the rate (UAE, Ireland, UK), buying tends to win. Where the rate is far above the yield (Brazil, South Africa, India), renting tends to win, unless price growth is strong.
Other costs move the line
- Transaction costs. Germany’s 10% buying costs and Spain’s 11% make short holds expensive even at moderate ratios.
- Recurring fees. New York’s $1,200 monthly co-op or condo charge is not in the ratio but heavily affects the result.
- Tax treatment. Mortgage interest relief, capital gains exemptions or imputed rent taxes, none of which our model includes, can change the picture in specific countries.
Comparability
The ratio assumes the rented home and the bought home are equivalent. Rental stock is often smaller, older or in different areas from homes for sale. If the rent figure is for a smaller apartment, the ratio overstates the case for renting. Our guide to buying a house vs renting an apartment explains how to adjust.
Rent prices vs house prices over time
Price-to-rent ratios are not fixed. When interest rates fall, buyers can afford more and prices tend to rise faster than rents, pushing ratios up. When rates rise, as they did in many countries in 2022–23 and again in late 2026, price growth usually slows while rents keep rising, and ratios drift down. The OECD publishes price-to-rent indices for member countries, indexed to a base year, which are useful for spotting whether a market’s ratio is high relative to its own history, though they do not give levels you can compare across countries.
A ratio well above a market’s long-run norm is a warning that buyers are depending on continued appreciation. A ratio below its norm can signal that owning has become relatively better value.
Price-to-rent ratio vs the 5% rule
The two shortcuts are related. The 5% rule says an owner’s unrecoverable costs run at about 5% of the home’s value a year, so renting is cheaper if annual rent is below 5% of the price. That is the same as saying renting is cheaper when the price-to-rent ratio is above 20 (because 1 ÷ 5% = 20).
The 5% rule is easier to personalise. If your property tax, maintenance and cost of capital add up to 4% rather than 5%, the threshold ratio becomes 25. If they total 6%, as in high-rate markets, the threshold drops to about 16.7. In other words, the “right” price-to-rent ratio for buying depends on your own costs, which is why fixed bands are only a rough guide.
How to calculate your own price-to-rent ratio
- Pick the home you would buy and note its realistic price.
- Find two or three comparable rentals nearby and average their monthly rent.
- Divide the price by 12 times that rent.
- Compare the result with the bands above and with the gross yield vs your quoted mortgage rate.
- Run the full numbers in the rent vs buy calculator for your country, which accounts for rates, costs, growth and your time horizon.
For affordability rather than value, the companion metric is the house price to income ratio. To see how these ratios shape the decision across countries, read rent vs buy around the world.
The bottom line
The price-to-rent ratio is the best one-number summary of whether a market favours renting or buying. Use it to screen, not to decide. Low ratios point toward buying and high ratios toward renting, but mortgage rates, transaction costs and how long you stay can reverse the signal.
This article is general information, not personal financial advice.
Run your own numbers
Every rule of thumb above depends on your rent, price, rate and how long you stay. Use the Rent vs Buy Calculator by Country below — it starts with local defaults you can change.