The Turnbull government has rejected Labor's policy to restrict negative gearing to new properties.
It now plans to target high-end investors by either capping the number of properties that can be geared or limiting the annual tax deductions of which can be claimed.
The Coalition is now pursuing negative gearing, superannuation and tax deductions for savings after plans for an increased GST were ditched.
"We've seen that they've converted tax reform into a cupcake process. The big reform is off the table. Clearly they're looking at options," Property Council chief executive Ken Morrison said.
Master Builders of Australia chief executive Wilhelm Harnisch took aim at Labor's policy saying it was a populist response.
"Investing in new private rental housing is not evil," he said.
Labor says its policy will raise $32 billion over 10 years, but just $570 million in the first four.
Treasurer Scott Morrison told The Australian Financial Review on Sunday that Labor's policy would focus all investors into the new housing market, making it harder for so-called "everyday mum and dad investors" to buy new houses or units off the plan.
This, he said, would intensify the inequity caused by negative gearing in which first homebuyers struggle to compete against cashed-up investors.
"Labor thinks all people who negatively gear are property barons to be fleeced."
On Saturday, Bill Shorten announced that a Labor government, if elected, would move change the rules so that only new homes purchased after July 1, 2017, could be negatively geared.
There would be no limit on the number of new properties that could be geared. Existing investors would not be affected by the changes.
Labor will also halve from 50 percent to 25 percent the capital gains tax deduction for investors who sell a property after holding it for at least 12 months.
On Sunday, shadow treasurer Chris Bowen reinforced Labor's reasoning that its policy would cause a boom in new home construction.