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Stand in front of the crafting table and turn in the correct Loot to start the Lego Build to build the dining room table and launch a cutscene. Destroy the cabinet to the left of the red curtains, then build the crafting table.
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Keep heading left into the kitchen and then into the dining room. There's nothing much that can be done in Story Mode in the newly accessible room, so instead backtrack and take a left into the living room.
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Switch to Dwalin and hit the left side of the piano with his hammer to clear the way into the next room and launch another cutscene. In the next room, destroy the bookcase on the right then build the rest of the platform next to the piano. Pick up the key and use it to unlock the door.
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Once the story starts inside Bag End, destroy the chest to the right of the door to uncover the key. Follow the light blue stud trail up to Bilbo's house to start this chapter. After the previous chapter ends, Bilbo is dropped into the game hub for the first time.
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