The arithmetic
Take the price of a home; divide by the annual rent of the same home (the actual comparable, not a smaller flat across town). A $600,000 house that rents for $2,200 a month — $26,400 a year — trades at a price-to-rent of about 22.7. That's it. The inverse is the gross rental yield: 4.4% in this case, before every cost of ownership.
The bands
Convention, drawn from long US and international samples: below ~15, ownership economics are strong and buying usually wins even with modest appreciation. Between ~15 and ~20 is contested ground where the answer turns on rates, horizon and appreciation. Above ~20 — and certainly above 25 — the market is pricing something other than rental economics (scarcity, status, expected growth), and renting-plus-investing frequently outruns buying on pure wealth.
The intuition is a bond analogy: a ratio of 25 means the house "yields" 4% gross — perhaps 2–2.5% after taxes, insurance and upkeep — and you are paying the difference in expectation of price growth. Sometimes that growth arrives. It is still a speculation with a boiler.
Where the ratio lies
It is silent on rates — the same ratio is a different decision at 3% and at 6% mortgages. It ignores leverage, which magnifies buying's outcomes in both directions. It says nothing about tenancy law, which decides how liveable long-term renting actually is in your city. And it compares one home; your alternative might be renting a different home entirely, which changes the denominator.
The house position
Use the ratio as a screen and the simulation as the answer. The Rent or Buy instrument runs your actual price, rent, rate and horizon month by month — buyer's equity against renter's invested difference — which is what the ratio approximates from thirty thousand feet. When the two disagree, believe the simulation; when they agree, believe them both. And read Home Affordability before either, because the winning strategy at a price you can't carry is not a strategy.