Population Forecasting

Time Series Forecasting Techniques

Wayne Foss, MBA, MAI

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

Real Estate Analysts - faced with a difficult task

long-term projections for small areas such as
Counties
Cities and/or
Neighborhoods
Reliable short-term projections for small areas
Reliable long-term projections for regions countries
Forecasting task complicated by:
Reliable, Timely and Consistent information
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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

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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

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

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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

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Assumptions and Conventions

Graphic conventions Assume:

Independent variable: x axis
Dependent variable: 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
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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.
Must carefully analyze:
Determine whether past trends can be expected to
continue, or
If continuation seems unlikely, alternatives must be
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considered
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: constant incremental growth
Geometric: 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 16
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

Appeal: Same as the Gompertz Curve 24

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
Curve Assumptions
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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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 28
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 Linear Linear Geometric Parabolic Modified

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

Input and Output Evaluation Statistics

Curve CRV ME MAPE Upper Limit

Linear (Odd) 0.01 0.00 2.82% none
Linear (Even) 0.01 -1,030.95 1.61% none
Geometric 0.01 56.87 3.17% none
Parabolic 351.27 0.00 1.41% none
Modified Exponential 73.29 -46.53 3.55% 400,000

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Housing Unit Method
Formulas:
1) HHg = ((BP*N)-D+HUa)*OCC
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
POPf Population Forecast 31
Housing Unit Method Example
Forecast Growth in Number of Housing Units
1) HHg = ((BP*N)-D+HUa)*OCC
HHg = ((193*5)-0+0)*95.1%
HHg = 918
Forecast Growth in Population
2) POPg = HHg * PHH
POPg = 918 * 2.74
POPg = 2,515
Forecast Total Population
3) POPf = POPc + POPg
POPf = 126,003 + 2,515
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POPf = 128,518
 So Thats
Population Forecasting

Wayne Foss, MBA, MAI, Fullerton, CA USA

Email: waynefoss@usa.net 33