Population Forecasting

Time Series Forecasting Techniques

Wayne Foss, MBA, MAI Wayne Foss Appraisals, Inc. Email: wfoss@fossconsult.com
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Extrapolation Techniques


Real Estate Analysts - faced with a difficult task



longlong-term projections for small areas such as

Counties Cities and/or Neighborhoods

 

Reliable short-term projections for small areas shortReliable long-term projections for regions countries longReliable, Timely and Consistent information
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Forecasting task complicated by:



Sources of Forecasts


Public and Private Sector Forecasts

 

Public: California Department of Finance Private: CACI

Forecasts may be based on large quantities of current and historical data

Projections are Important



Comprehensive plans for the future



Community General Plans for

Residential Land Uses Commercial Land Uses Related Land Uses
  

Transportation Systems Sewage Systems Schools

Definitions


Estimate:


is an indirect measure of a present or past condition that can be directly measured. are calculations of future conditions that would exist as a result of adopting a set of underlying assumptions. is a judgmental statement of what the analyst believes to be the most likely future.
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Projection (or Prediction):



Forecast:


Projections vs. Forecasts



The distinction between projections and forecasts are important because:



 

Analysts often use projections when they should be using forecasts. Projections are mislabeled as forecasts Analysts prepare projections that they know will be accepted as forecasts without evaluating the assumptions implicit in their analytic results.
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Procedure


Using Aggregate data from the past to project the future.



Data Aggregated in two ways:

total populations or employment without identifying the subcomponents of local populations or the economy


I.e.: age or occupational makeup

deals only with aggregate trends from the past without attempting to account for the underlying demographic and economic processes that caused the trends.


Less appealing than the cohort-component cohorttechniques or economic analysis techniques that consider the underlying components of change. 7

Why Use Aggregate Data?

Easier to obtain and analyze Conserves time and costs Disaggregated population or employment data often is unavailable for small areas

  

Extrapolation: A Two Stage Process



Curve Fitting 

Analyzes past data to identify overall trends of growth or decline

Curve Extrapolation 

Extends the identified trend to project the future

Assumptions and Conventions



Graphic conventions Assume:

 

Independent variable: Dependent variable:

x axis y axis

This suggests that population change (y axis) is dependent on (caused by) the passage of time! Is this true or false?
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Assumptions and Conventions



Population change reflects the change in aggregate of three factors:

  

births deaths migration

These factors are time related and are caused by other time related factors:
 

health levels economic conditions

Time is a proxy that reflects the net effect of a 11 large number of unmeasured events.

Caveats


The extrapolation technique should never be used to blindly assume that past trends of growth or decline will continue into the future.


Past trends observed, not because they will always continue, but because they generally provide the best available information about the future. Determine whether past trends can be expected to continue, or If continuation seems unlikely, alternatives must be 12 considered

Must carefully analyze:



Alternative Extrapolation Curves

     

Linear Geometric Parabolic Modified Exponential Gompertz Logistic

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Linear Curve


Formula:
 

Yc = a + bx

a = constant or intercept b = slope

 

Substituting values of x yields Yc Conventions of the formula:

  

curve increases without limit if the b value > 0 curve is flat if the b value = 0 curve decreases without limit if the b value < 0
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Linear Curve

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Geometric Curve


Formula:
 

Yc = abx

a = constant (intercept) b = 1 plus growth rate (slope)

Difference between linear and geometric curves:

 

Linear: Geometric:

constant incremental growth constant growth rate

Conventions of the formula:

  

if b value > 1 curve increases without limit b value = 1, then the curve is equal to a if b value < 1 curve approaches 0 as x increases

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Geometric Curve

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Parabolic Curve


Formula:
  

Yc = a + bx + cx2

a = constant (intercept) b = equal to the slope c = when positive: curve is concave upward when = 0, curve is linear when negative, curve is concave downward growth increments increase or decrease as the x variable increases

Caution should be exercised when using for long range projections. Assumes growth or decline has no limits 18

Parabolic Curve

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Modified Exponential Curve



Formula:
  

Yc = c + abx

c = Upper limit b = ratio of successive growth a = constant

This curve recognizes that growth will approach a limit



Most municipal areas have defined areas

i.e.: boundaries of cities or counties
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Modified Exponential Curve

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Gompertz Curve


Formula:
  

Log Yc = log c + log a(bx)

c = Upper limit b = ratio of successive growth a = constant

 

Very similar to the Modified Exponential Curve Curve describes:

  

initially quite slow growth increases for a period, then growth tapers off

very similar to neighborhood and/or city growth patterns over the long term
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Gompertz Curve

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Logistic Curve


Formula: Yc = 1 / Yc-1 where Yc-1 = c + abX

  

c = Upper limit b = ratio of successive growth a = constant

Identical to the Modified Exponential and Gompertz curves, except:



observed values of the modified exponential curve and the logarithms of observed values of the Gompertz curve are replaced by the reciprocals of the observed values. Result: the ratio of successive growth increments of the reciprocals of the Yc values are equal to a constant
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Appeal: Same as the Gompertz Curve

Logistic Curve

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Selecting Appropriate Extrapolation Projections



First: Plot the Data

 

What does the trend look like? Does it take the shape of any of the six curves Linear: if growth increments - or the first differences for the observation data are approximately equal Geometric: growth increments are equal to a constant
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Curve Assumptions


Selecting Appropriate Extrapolation Projections, cont



Curve Assumptions


Parabolic: Characterized by constant 2nd differences (differences between the first difference and the dependent variable) if the 2nd differences are approximately equal Modified Exponential: characterized by first differences that decline or increase by a constant percentage; ratios of successive first differences are approximately equal
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Selecting Appropriate Extrapolation Projections, cont



Curve Assumptions


Gompertz: Characterized by first differences in the logarithms of the dependent variable that decline by a constant percentage Logistic: characterized by first differences in the reciprocals of the observation value that decline by a constant percentage

Observation data rarely correspond to any assumption underlying the extrapolation curves

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Selecting Appropriate Extrapolation Projections, cont



Test Results using measures of dispersion

  

CRV (Coefficient of relative variation) ME (Mean Error) MAPE (Mean Absolute Percentage Error)

 

In General: Curve with the lowest CRV,ME and MAPE should be considered the best fit for the observation data Judgement is required Select the Curve that produces results consistent with the most likely future 29

Selecting Appropriate Extrapolation Projections, cont

Alternate Estimates and Projections Year 1960 1965 1970 1975 1980 1985 1990 1995 2000 Linear Odd 98,640 109,050 119,460 129,870 140,280 150,690 161,100 171,510 181,920 Linear Geometric Parabolic Even 101,114 98,956 94,683 109,669 108,263 111,029 118,223 118,444 123,417 126,777 129,583 131,849 135,331 141,770 136,323 143,886 155,102 136,840 152,440 169,688 133,400 160,994 185,647 126,003 169,549 203,106 114,649 Modified Exponential 101,017 109,979 118,672 127,105 135,285 143,220 150,917 158,384 165,626

Input and Output Evaluation Statistics Curve Linear (Odd) Linear (Even) Geometric Parabolic Modified Exponential CRV 0.01 0.01 0.01 351.27 73.29 ME 0.00 -1,030.95 56.87 0.00 -46.53 MAPE 2.82% 1.61% 3.17% 1.41% 3.55% Upper Limit none none none none 400,000

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Housing Unit Method



Formulas:
  

1) HHg = ((BP*N)-D+HUa)*OCC ((BP*N)2) POPg = HHg * PHH 3) POPf = POPc + POPg

Where: HHg
Growth In Number of Households BP Average Number of Bldg. Permits issued per year since most recent census N Forecast period in Years HUa No. of Housing Units in Annexed Area OCC Occupancy Rate POPg Population Growth PHH Persons per Household POPc Population at last census 31 POPf Population Forecast

Housing Unit Method Example



Forecast Growth in Number of Housing Units



1)

HHg = ((BP*N)-D+HUa)*OCC ((BP*N)-

HHg = ((193*5)-0+0)*95.1% ((193*5) HHg = 918

Forecast Growth in Population



2) POPg = HHg * PHH POPg = 918 * 2.74 POPg = 2,515

Forecast Total Population



3)

POPf = POPc + POPg

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POPf = 126,003 + 2,515 POPf = 128,518

So Thats Population Forecasting

Wayne Foss, MBA, MAI, Fullerton, CA USA Email: waynefoss@usa.net

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