Mr Fluffy houses will be demolished, says Chief Minister Katy Gallagher

Ms Gallagher said homeowners would be given six months from January to opt into the buyback. She conceded compulsory acquisition would be considered for those who didn't opt in, while stressing she wanted people to go voluntarily. The government would come to an arrangement with elderly people who wanted to live out their lives in their Fluffy homes, perhaps buying the houses and allowing people to continue living in them.

The plan was no house would be left standing at the end of the five-year program, Ms Gallagher said, signalling she would also deal with the loose-fill asbestos in a ceiling at the Ainslie shops.

The fall-out will extend beyond Fluffy homeowners, with a recommendation from the Asbestos Taskforce that anyone owning a house built before 1980 must have a full assessment before maintenance or renovations, and before selling – a requirement designed to catch Fluffy houses missed in the clean-up. No decision on that recommendation has been made.

The cost of up to $1 billion will be borne entirely by the territory, despite Ms Gallagher's attempts to persuade the federal government to help pay.

Federal Employment Minister Eric Abetz rejected any federal liability for the clean-up, and has agreed only to source a 10-year loan for the territory at the 0.6 per cent lower interest rate available to the Commonwealth. The cheaper loan would save Canberra about $32.3 million in interest, he said.

Ms Gallagher said 200 houses or more would be demolished a year. People would have the option of selling as soon as the scheme began, but if they wanted to return to their land, they might have to wait some time, with the program rolling out over years – perhaps suburb by suburb. They would have to pay market rate at whatever time the land was ready to be re-sold, she said, conceding that might be beyond the ability of some to afford.

While homeowners would get first option to buy back the land, they would not necessarily get the full block, she said. Blocks would be subdivided and rezoned where that was possible to maximise the amount the government could recoup, so owners of those blocks would face smaller, subdivided sections.

And it wouldn't be the same land. "The block is essentially scraped, so the trees will go, the garden will go, the pool will go, everything will go," she said.

The price would be set at the average of two valuations, and an arbitration process would deal with disputes.

Ms Gallagher said some "very difficult" discussions would come – not only negotiations with homeowners, but dealing with the budget implications.

"The rezoning will help us in some circumstances but again that's going to be difficult for some people who are on a large block and want to go back and it's a mini block, or half the size," she said.

Pushed on whether the buyback would become compulsory, Ms Gallagher said her preference was for people to sell their homes voluntarily to ensure confidence was maintained in the ACT's leasehold system of land ownership.

"They've got six months to say 'Yes, I'm in', and we'll get an indication through that of people who are refusing to participate and we'll have to look at how we manage that," she said.

"I dont want to say we're going to just jump in to compulsory acquisition. Again, that's a really problem for our leasehold system, we don't want to scare off investors in other projects if they think the government can just walk in and compulsorily acquire a lease, so it's not our preferred way of doing it."

For those who wanted to live out their lives in their homes, that would not be encouraged, but would be accommodated at least in the case of elderly people, she said, indicating those cases might be last on the demolition list, and conceding there would probably be some "outliers".

"Those people who are really upset about leaving, they will not be the target of our attention in the first couple of years," she said, but long-term habitation was "not practicable or safe".

The demolition program would override heritage and tree protection rules.

Once the land had been cleaned, the new crown lease would not refer to Mr Fluffy, so the land would retain no stigma attached to asbestos.

Senator Abetz rejected the ACT government's case that a memorandum of understanding signed after the clean-up in 1991 placed an obligation on the Commonwealth to help pay. The document says if it became necessary to remove additional asbestos from homes after the clean-up, costs would be shared two thirds by the Commonwealth and one-third by the territory. In it, the Commonwealth indemnifies the territory against all claims or demands brought. But Senator Abetz said he had "very strong legal advice to indicate that responsibility for these matters lies fair and square with the territory and state governments". The memorandum had expired and was "of no consequence", he said. He would not elaborate on the claim.

The federal government will require the ACT government to indemnify it "in relation to any matter that might arise", Senator Abetz said. Ms Gallagher said the indemnity related to compensation claims for the likes of economic loss, and the ACT government would require the same of homeowners. It would not apply to health claims, Ms Gallagher said.

Head of Maurice Blackburn's asbestos practice Theodora Ahilas said the program, if rolled out properly, should avoid litigation for property losses and deal with compensation for property devaluation. But the devil was in the detail. she said, asking whether homeowners would be helped to find and buy new homes and be compensated for disruption to work and school, and what would be done to stop a distortion in the real estate market and unscrupulous vendors inflating prices.

She said the plan dealt with financial loss, not personal injury, and anyone with an asbestos-related disease had the right to pursue a legal claim.