They are called "iceberg houses".

From the outside they look like any normal terrace home, but they're sitting upon a deep labyrinth of additional rooms, all built below ground level.

Property observers believe there is a growing trend of subterranean developments in Melbourne's exclusive inner suburbs.

While many residential buildings in these areas can rise no higher than two-storeys, there is nothing stopping homeowners renovating downwards.

This week Melbourne City Council approved four apartments to be constructed behind an 1872 heritage shopfront in Gipps Street, East Melbourne. Above ground, the building is just 7.8 metres tall, but the basement area burrows down another 10.5 metres deep.

The underground levels include extra living areas, bedrooms, ensuites, power rooms and a three-level automatic car stacker for eight vehicles.

Also in East Melbourne, a two-level basement extension was recently approved for an early Victorian terrace in Hotham Street. It will boast a wine cellar, plant room, gymnasium, squash court and two lifts, including one for a car.

Iceberg houses have long been in vogue in London, where very wealthy homeowners are similarly restricted from visibly expanding their luxury pads due to heritage restrictions.

And some have caused problems. Last November a Georgian home opposite the River Thames suddenly collapsed into a newly-dug void beneath.

Without proper oversight, there are concerns that problems seen internationally with elaborate basement extensions could occur in Melbourne.

Melbourne councillor Rohan Leppert said there were no planning policies regulating basement extensions in Victoria. "There's no controls about how low you can go," he said.

Ken Ong, another Melbourne councillor, said as more developments were driven underground, authorities would need to deal with the possibility neighbouring heritage properties could be damaged through massive excavations.

This danger has already been illustrated locally. Last year two townhouses in Mount Waverley were left teetering on the edge of a 15-metre-deep hole after a neighbouring construction pit collapsed.

The earth below the pit-side townhouses in Mount Waverley. Photo: Simon O'Dwyer

Ground water is also likely to be an issue in some basement expansions.

Real estate agent Philippe Batters said he had sold a house in Middle Park where the hand-dug cellar had been flooded with water, which rose and subsided with the sea tide.

Mr Batters said there did appear to be an anecdotal trend towards subterranean developments.

"It's always the men who are sent underground," he observed. "With affluent men, having multiple cars is a big hobby. And I've been in basements were there are all sorts of Ferraris and vintage cars."

Developer Cranecorp is behind East Melbourne's new "iceberg" apartment project where close to half of the building will be underground, but brand and marketing director Andrew Drucker said the basement areas would not feel like a dungeon or a vault.

"For a permit to be granted we had to satisfy light requirements, [but we also] wanted to make sure they were liveable," he said.

Sunlight from outside will be funnelled into the rooms through "light courts", which will also serve as a sunken courtyards.

Mr Drucker predicted that underground developments would "take off" in Melbourne due to the market factors at play.

"Height restrictions in all of Melbourne's best suburbs are a real challenge for developers," he said. "East Melbourne is Melbourne's most-liveable suburb … everyone wants to live there but there is just not enough housing."

Melbourne City Council planners are now preparing a report on how to manage construction of future underground residential developments.