Urbanization and urban population have dramatically increasing in many developing countries. Ethiopia is also experiencing with high rate of urbanization and growth of population. These high rate of urbanization require sustainable land use allocation for housing development and other functions. Housing is basic human need, which has evolved from simple shelters to modern housing units. However, affording housing is a challenge due to inefficiencies in the allocation/planning and management of the land. Hence, the main objective of this study was to assess urban land-use suitability for sustainable residential development using a GIS-based computing approach. A mixed research approach and survey research design were applied to provide a comprehensive analysis of the research. Both spatial and socio-economic primary and secondary data were used for this study. Primary data were collected using survey Questionnaires, Focus Group Discussion and interview data. Spatial data were collected from United States Geological Survey, Global Mapping Viewer website. Simple random for selecting household respondents and purposive sampling techniques for selecting expert respondents were used. The quantitative data were analyzed using descriptive statistics. Then, the weighted overlay multi criteria evaluation technique was used to assess sustainable residential development area through Analytical Hierarchy Process pairwise comparison method. The final suitability map indicated that 8.44%, 52.95%, 24.84%, 13%, and 0.77% of the total areas are highly suitable, suitable, moderately suitable, marginally suitable and unsuitable for housing development respectively. Though most of the areas are suitable for residential housing, affordable residential housing is a challenge due to lack of immediate response for legal housing association, high compensation payment, lack of urban land use planning, corruption, lack of responsibility and accountability. All these hamper the affordability of housing and the sustainability of land use. Taking into account the results, this research recommends the uses of land use suitability map for sustainable housing development in the town.