The physical world is not merely visual; it is governed by rigorous structural and procedural constraints. Yet, the evaluation of vision-language models (VLMs) remains heavily skewed toward perceptual realism, prioritizing the generation of visually plausible 3D layouts, shapes, and appearances. Current benchmarks rarely test whether models grasp the step-by-step processes and physical dependencies required to actually build these artifacts, a capability essential for automating design-to-construction pipelines. To address this, we introduce DreamHouse, a novel benchmark for physical generative reasoning: the capacity to synthesize artifacts that concurrently satisfy geometric, structural, constructability, and code-compliance constraints. We ground this benchmark in residential timber-frame construction, a domain with fully codified engineering standards and objectively verifiable correctness. We curate over 26,000 structures spanning 13 architectural styles, ach verified to construction-document standards (LOD 350) and develop a deterministic 10-test structural validation framework. Unlike static benchmarks that assess only final outputs, DreamHouse supports iterative agentic interaction. Models observe intermediate build states, generate construction actions, and receive structured environmental feedback, enabling a fine-grained evaluation of planning, structural reasoning, and self-correction. Extensive experiments with state-of-the-art VLMs reveal substantial capability gaps that are largely invisible on existing leaderboards. These findings establish physical validity as a critical evaluation axis orthogonal to visual realism, highlighting physical generative reasoning as a distinct and underdeveloped frontier in multimodal intelligence. Available at https://luluyuyuyang.github.io/dreamhouse