This Study aims at identifying optimum residential area of small and medium local cities to be relocated in the future. In the object of study, Chinju City was chosen and it consists of three stages of application to choose the priority of residential development us well as available residential locations. In the first stage, a digital image processing technique was applied to generate the existing urban land use information from the satellite image data. In the second stage, GIS technique was used to choose the avaliable residential area by evaluating the elements for residential site allocation such as road accessibility, topographic height, slope, aspect, legal limit, population density, and land price. In the third stage, some mathematical location models were applied to identify optimum candidates of residential areas chosen by earier stages. The results were evaluated by statistical methods and integer programming to identify the development priority. We expect this procedures and the results will be able to be used as a guide-line to support housing policies of Chinju City by allocating residential sites as well as a technique to apply a locational analysis for the future residential areas of small and medium local cities.