Urban Renewal Model

The city of Erstville is faced with a severe budget shortage. Seeking a long-term solution, the city
council votes to improve the tax base by condemning an inner-city housing area and replacing it
with new development.
The project involves two phases:

1. demolishing substandard houses to provide land for the new development, and
2. building the new development.
Lot sizes for new single-, double-, triple-, and quadruple-family homes (units) are 0.18, 0.28, 0.4,
and 0.5 acre respectively. Streets, open space, and utility easements account for 15% of available
acreage.
In the new development the triple and quadruple units account for at least 25% of the total.
Single units must be at least 20% of all units and double units at least10%.
The tax levied per unit for single, double, triple, and quadruple units is $1,000, $1,900, $2,700
and $3,400, respectively.
As many as 300 substandard houses can be demolished. Each house occupies a .25 acre lot. The
cost of demolishing a house is $2000.
The construction cost per unit for single-, double-, triple- , and quadruple family homes is
$50,000, $70,000, $130,000, and $160,000, respectively. Financing through a local bank can
amount to a maximum of $15 million.

How many units of each type should be constructed to maximize tax collection?

Explanation:

Indices:  i = type of home

Decision Variables:  xi = number of units of type of home i

Variables:

The variables of the model are:

1. the number of units to be constructed of each type of housing,

2. the number houses must be demolished to make room for the new development.
Objective Function:

Maximize total tax collection from all four types of homes.

The objective function: Max z = 1000x1 + 1900x2 + 2700x3 + 3400x4

Constraints:

The rst constraint of the problem deals with land availability.

Acrease used for new Net available

[( )] ≤ [( )]
homes constructon acreage

The acreage needed for new homes = .18x1 + .28x2 + .4x3 + 5x4

To determine the available acreage, each demolished home occupies a .25 - acre lot, thus netting
.25x5  acres.

Allowing for 15 % open space, streets, and easements, the net acreage available is
 .85(.25x ) = .2125x The resulting constraint is:
5 5

0.18x1 + .28x2 + .4x3 + .5x4   ≤  .2125x5

0.18x1 + .28x2 + .4x3 + .5x4 − .2125x5   ≤  0

The number of demolished homes cannot exceed 300, which translates to:

x5 ≤ 300

The constraints limiting the number of units of each home type:

Number of single units  ≥  20% of all units

⎡ ⎤

⎢ Number of double units  ≥  10% of all units ⎥

⎣ ⎦
Number of triple and quadruple units  ≥  25% of all units

x1   ≥  .2(x1 + x2 + x3 + x4 )

x2   ≥  .1(x1 + x2 + x3 + x4 )

x3 + x4   ≥  .25(x1 + x2 + x3 + x4 )

Keep the demolition/construction cost within the allowable budget.

(Constructon and demolition cost)  ≤  (Available budget)

Expressing all the costs in thousands of dollars, we get:

(50x1 + 70x2 + 130x3 + 160x4 ) + 2x5   ≤  15000

LP Formula:
 Maximize   Total tax collection

Maximize z = 1000x1 + 1900x2 + 2700x3 + 3400x4

subject to:

0.18x1 + .28x2 + .4x3 + .5x4 − .2125x5   ≤ 0

 x5 ≤ 300

  − .8x1 + .2x2 + .2x3 + .2x4 ≤ 0

  .1x1 − .9x2 + .1x3 + .1x4 ≤ 0

   .25x1 + .25x2 − .75x3 − .75x4 ≤ 0

  50x1 + 70x2 + 130x3 + 160x4 + 2x5   ≤ 15000

Bounds:

x1 , x2 , x3 , x4 , x5   ≥  0

Solution:

Total tax collection = z = $343, 965

x1   =  35.83  ≈  46 units

x2   =  98.53  ≈  99 units

x3   =  44.79 ≈  45 units

x4   =  0 units

x5   =  244.49  ≈  245 units

Total units to be constructed = 36 + 99 + 45 = 180 units

Total units to be demolished = 245 units

Remarks:

Linear programming does not guarantee an integer solution automatically, and this is the reason for
rounding the continuous values to the closest integer. The rounded solution calls for constructing
 180(36 + 99 + 45) units and demolishing  245 old homes, which yields  $345, 600 in taxes.

Keep in mind, however, that, in general. the rounded solution may not be feasible. In fact, the current
rounded solution violates the budget constraint by  $70, 000 (verify!). Interestingly, the true optimum
integer solution is  x = 36,  x = 98,  x = 45,  x = 0,  and x = 245 with z = $343, 700.
1 2 3 4 5

Carefully note that the rounded solution yields a better objective value, which appears contradictory. The
reason is that the rounded solution calls for producing an extra double home, which is feasible only if the
budget is increased by  $70, 000