This is an interesting question. I'll have to give it some proper thought. The first thing that occurs to me is that the settlement could expand vertically just as easily, or moreso, than horizontally. You might be interested in this picture, of an underground city in Cappadocia, Turkey.
I think you may be wrong about the town needing more planning, though. The amount of planning a settlement receives is generally a product of the level of government or central authority, not the circumstances of the town.