The City of Melbourne's Graffiti Management Plan describes graffiti as 'writing or drawing on walls without permission' – good news for those whose weapon of choice is a ball of wool. However this is said to encompass, among other things, 'pieces which are large, mural-style works', and given that much legislation is subject to interpretation, it would be disappointing but perhaps not surprising for government to take a stand against yarn bombing.
For other forms of street art, the answer is definitely a resounding 'no'. Although Melbourne is known for its 'laneway culture' which includes a significant amount of street art, the City of Melbourne encourages artists to work within the bounds of designated – 'legitimate' – street art sites, and according to the Graffiti Management Plan currently spends over $700,000 per year on removal of existing graffiti.
However, the news isn't all bad. Local newspaper The Moreland Leader cites Moreland Mayor Oscar Yildiz as being "not concerned" by the presence of yarn bombs, or 'yarn storms' in the Moreland area. A quick survey of recent articles regarding yarn bombing gives the impression that the overall attitude towards this form of art is favourable, perhaps because is not a mark of vandalism or ownership, as some graffiti may be. While there is no current legislation against it, residents - take up your needles!