Ms Gallagher told the ACT Assembly it was looking increasingly likely that the asbestos taskforce would recommend demolition of the Mr Fluffy houses but said it "might not be a one size fits all" solution.

She had received a heartfelt letter on Wednesday from a Mr Fluffy homeowner who did not want their home demolished, and the government would "as much as we can" respect the wishes of individual owners, she said.

"The government's final decision on this might not be a one size fits all because within the Mr Fluffy homes there are a range of views," she said.

To suggestions from Liberal Leader Jeremy Hanson that the taskforce was falling behind on its deadlines for contacting Fluffy residents, Ms Gallagher said it was a huge task, with a surge in registrations in the weeks since the registered post letter was sent and the taskforce was giving priority to homeowners.

It had also been diverted by issues such as the allegation that the Northbourne House office building had contained loose-fill asbestos, a suggestion that had proved false, but had taken almost two days to investigate.

Ms Gallagher was speaking during an Assembly debate on the crisis, during which Mr Hanson cited the case of a family which had bought their house in November last year and had only discovered late last month that their home had been contaminated with Mr Fluffy asbestos.

The family had a two-year-old and a new baby due in October. They were feeling "totally overwhelmed", worried about the health of their children, unable to sleep and spending every waking hour thinking about the financial ruin they faced.

Attorney-General Simon Corbell, who was responsible for the Mr Fluffy issue before Ms Gallagher took it over in June, said no one knew the extent and complexity of the issue when the letter was sent to residents in February. There had been a growing level of concern, anxiety and stress since it became clear that many more homes than contemplated were still contaminated – some to the extent they were not safe to live in.

It was a "fiendishly complex and difficult issue", Mr Corbell said. For many householders, their home was their main asset and their financial future and it had now been seriously compromised, with no insurance and no way to recover their loss, he said.

Mr Corbell criticised the NSW government's response as inadequate and disappointing. NSW homes still contain the dangerous loose-fill asbestos, installed by the Mr Fluffy company in Queanbeyan and other surrounding towns, and also apparently used in Sydney homes and others in the state. Nothing has been done to pin down the extent of contamination in NSW, nor remove the asbestos.

Liberal Brendan Smyth said the Mr Fluffy crisis had implications for homeowners that went beyond their immediate family – having to tell "the parents of your son's best friend" that you live in a Mr Fluffy home, or the person who delivers meals on wheels and having the problem "rear its ugly head" every time someone wanted to renovate or alter their house.

It also emerged on Wednesday that the government had to engineer a special exemption to rules that restrict the use of homeowners' name and address information to tax purposes, such as sending rates bills. The government used the information to send its recent registered-post letter to Mr Fluffy homeowners.