[Eru]

If the house was placed there before the policy was in place then that's fair enough. It can stay as it wasn't a rule at the time.
Its also a part of their Role-play being DragonKin so i guess that also makes it an OK thing.

It doesn't give them any real kind of an advantage so what does it matter?
Does it really need to be started as another topic of conversation?

I'm not even sure if they play anymore. But yes, it was added before the not-inside-a-dungeon rule.