Fewer than one in 10 of Kenya's urban dwellers can afford a mortgage, while rural incomes are too low for a mortgage market to develop, a central bank and World Bank study showed on Wednesday.

The potential mortgage market in east Africa's largest economy is worth around 1.1 billion shillings.

But it is crimped by a lack of access to long-term funds, low incomes, credit risk and high interest rates as well as a large informal employment sector such as small-scale farmers, traders and others.

Kenya's total mortgage debt is only 2.4 percent of gross domestic product, and outstanding mortgages stood at just 61.4 million shillings as of May 2010, though that was up from 53.8 million in 2009, according to central bank statistics.

The number of loan accounts doubled from 2006 to 2010 but still stood at only 15,049 as of May last year.

The report computes that about 8 percent of the urban population would be able to afford a mortgage loan. That's equivalent to about 3-4 percent of the total population of Kenya, said Simon Walley, a senior World Bank housing finance specialist.

Only 1 percent of Kenyans earn more than 2.7 million shillings annually and another 4 percent make 1.8 to 2.7 million shillings, the report said. Half of the urban population earns less than 343,964 shillings a year.

Kenya has an annual housing need of 210,000 units against supply of 50,000 houses.

The urbanisation level is projected to hit 50 percent by 2030 from 39.7 percent in 2009.

The average mortgage is for 3.2 million shillings paid over 15 years at a rate of 14 percent.

You can look to reduce interest rates gradually by improving efficiency and look to offer longer-term mortgages and lower the cost of housing, Walley said.

Developing access to mortgages would help higher income earners but the needs of the majority of the population would still go unmet, the report showed.

Other solutions such as building more efficiently and having affordable loans from savings and credit cooperative societies, or creating incentives for developers to build for rent, could improve access to mortgaged housing for low income earner.

If you have a system where landlords are secure and can invest in quality housing and put services in and still get a return, you can look at an expansion of good quality, safe rental housing in an urban context, Walley said.