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By doing a perk test. Something the home owner can do. Dig a hole somewhere in the root zone, fill it up with water and let it drain. Fill it up again and time how long it takes to lower in inches. Half an inch or less in 60 min is slow, 1/2" to 1" is nomal, faster than 1" is highly porous...

Yes, appropriate water, an inch a week during dry spells. It is common for people to want to play catch up when told their tree is drought-stressed. You will need to check that infiltration rate is adequate also. Construction, drought, and even lawn care practices, can all create enough...

Extended drought is probably main culprit, but a building of that size and in that location can change the dynamics in more ways than just root damage. Can water be added to the root zone? Stemic insecticide injection? Was the tree showing as much stress at the time of injection?

No on the fertilizer, just the reduction you did will do all the tree can handle on producing regrowth. If it is even capable of doing so. Anything beyond the playhouse itself going on that you suspect as causing the decline?