Cost　estimating　based　on　a　building　cost　index　plays　an　important　role　in　project　planning　and　cost　management　by　providing　accurate　cost　information.　However,　an　effective　method　to　predict　the　building　cost　index　of　New　Zealand　is　lacking.　This　study　proposes　a　transfer　function　method　to　improve　the　forecasting　accuracy　of　the　building　cost　index.　In　this　study,　the　New　Zealand　house　price　index　is　included　in　the　transfer　function　models　as　an　explanatory　variable　to　produce　cost　forecasts.　The　proposed　method　is　used　to　estimate　the　building　cost　index　of　residential　buildings　including　one-story　houses,　two-story　houses,　and　town　houses　in　New　Zealand.　To　demonstrate　the　effectiveness　of　the　proposed　method,　this　study　compares　the　cost　forecasts　generated　from　the　transfer　function　models　and　the　autoregressive　integrated　moving　average　(ARIMA)　models.　The　results　indicate　that　the　proposed　transfer　function　method　can　achieve　better　outcomes　than　ARIMA　models　by　considering　the　time-lag　causality　between　building　costs　and　New　Zealand　house　prices.　The　proposed　method　can　be　used　by　industry　professionals　as　a　practical　tool　to　predict　project　costs　and　help　the　professionals　to　better　capture　the　inherent　relationships　between　cost　and　house　prices.