A May election defeat is looming and some MPs are jumping ship early.

The Federal Government’s sustained assault on Labor’s housing policies has been blunted by the revelation Treasury slapped it down for overblowing the argument.

In January, acting Treasurer Kelly O’Dwyer asked officials from the department to fact check the idea that Labor’s policies would lead to a fall in property prices.

In emails obtained by the ABC, Treasury wrote back, saying the Government’s claims were “not consistent” with its advice.

“We did not say that the proposed policies ‘will’ reduce house prices. We said that they ‘could’ put downward pressure on house prices in the short term, depending on what else was going on in the market at the time, but in the long term they were unlikely to have much impact,” the department said.

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Labor has promised to limit negative gearing to new properties and halve the 50 per cent capital gains tax discount.

It announced those policies in early 2016 when house prices were still growing. But the politics of the issue have shifted dramatically after a steep fall in prices over the last 18 months.

And the Government has pounced, doubling down on its warnings the proposed changes would crash the property market and seriously harm the economy.

During the first parliamentary sitting fortnight of the year, Treasurer Josh Frydenberg repeatedly attacked “Labor’s big new housing tax”.

“Everyone who owns a home will see it be worth less, and under that policy, everyone who rents a house will end up paying more,” he said.

We now know Treasury’s advice was far more circumspect.

Shadow treasurer Chris Bowen responded to today’s revelation by saying the Government had been “caught red-handed” misrepresenting the department’s advice.

“This proves beyond doubt that Scott Morrison and his desperate Liberals have been lying to Australians about Labor’s policy,” he said.

Meanwhile, Mr Frydenberg said there was more to Treasury’s advice. He quoted the department as advising the changes “could be particularly problematic if they coincide with weakness in the housing market”.

“The Labor Party came up with a policy when the housing market was going up. Now the housing market is going down,” he said.

Mr Frydenberg pointed to comments from industry groups to back up his argument.

Last week the Property Council of Australia released research suggesting there was a critical flaw in Labor’s policies.

It surveyed existing property investors, and a number of people who were considering making an investment, and found the changes would make them less likely to invest in newly-constructed housing — something Labor hoped to avoid by continuing to allow negative gearing on new homes.

“The big impact here is that if you don’t have the new supply of rental accommodation coming down the pipeline, you’ll have rent increases. You’ll have demand outstripping supply,” Property Council chief executive Ken Morrison said.

“The key assumption that Labor thought was in its policy that there would be this stimulus there just doesn’t seem to be there.

“They need to really rethink their policy to make sure that as we go through a bit of a bumpier time in the economy that we’re not doing things which would damage our growth and damage jobs.”

Mr Morrison said the policies would also impact jobs because new housing construction was a “big part of the economy”.

“The (Property Council) survey found almost half of all investors admitted they would be forced to charge more rent, the number of investors buying new homes would fall by more than 25 per cent and around six in 10 current investors would be discouraged from investing in property,” Mr Frydenberg said today.

On top of that, late last year, the Master Builders Association released modelling that predicted Labor’s policies would lead to “up to 42,000 fewer dwellings” being built.

“Labor’s policies on negative gearing and capital gains tax fail its own test,” CEO Denita Wawn said.

Labor has dismissed the Government’s warnings as scaremongering, saying its proposed changes are modest.

“It will not have the negative impact on prices that the people trying to oppose our current scheme are saying. Absolutely not,” Opposition Leader Bill Shorten said last month.

“First home buyers don’t get a fair deal.

“How is it fair that a couple in their 20s or 30s go along to bid for a house, and they’re competing against someone who is getting a taxpayer handout to buy the house as their sixth or seventh home?

“As usual with the Government, if they’re given a choice between standing up for ordinary Aussies or standing up for the vested interest, they pick the vested interest.”

Mr Shorten tried to address the risk of rising rents by announcing a new policy during the ALP National Conference in December.

Labor will offer investors who build new homes 15-year subsidies, totalling $8500 per year, if they lease the properties for 20 per cent below market rent.