Theory suggests that it will depend on the growth rate of rents and the interest rate used to discount future rents in much the same way as stock prices depend on dividends. While this ratio can thus evolve over time and will be highly sensitive to these variables, one would not expect the “normal” level to fluctuate strongly.
Thus, the tripling of the price-rent ratio in the residential property market between 1995 and 2007, and the 50% increase of the same ratio in the commercial property market between 2003 and 2007, ought to have struck observers as out of line and as not unlikely to be reversed.