"cheap saloon, often with an associated brothel," by 1875, American English, so called in reference to the barrels of beer or booze typically stacked along the wall. See barrel (n.) + house (n.).
Q. What was this place you rented? — A. It was a room adjoining a barrel-house.
Q. What is a barrel house? — A. It is a room where barrels of whisky are tapped, a very inferior kind of whisky, and the whisky is sold by the glassful right out of the barrel. It is a primitive coffee house. [Committee Report of the 43rd Congress, Select Committee on Conditions of the South, 1874-75]