Cost estimating based on building cost index plays an important role in project planning and management by providing accurate cost information. Recently, tremendous advances in cost estimating has been made but serious inaccuracies in it are still too frequently witnessed. This study aims to improve estimating accuracy for residential building costs in New Zealand. In this study, the New Zealand house prices index is involved in the transfer function models to produce forecasts of building costs for one-storey house, two-storey house, and town house in New Zealand. To demonstrate the effectiveness of the proposed models, this study compares the estimate results of the transfer function models with the univariate ARIMA models. The results indicate that the proposed transfer function models can achieve better outcomes than ARIMA models by considering the causality between building costs and New Zealand house prices. During the modelling process, the better cost estimation approach can be identified, and the movements of building costs are shown.