Find a decent-sized cedar or birch log for the birdhouse. It doesn't have to be very long, but it does need a decent girth.
Use a drill with a paddle bit that is about 2/3 the width of the log to hollow it out. If you don't have a paddle bit, you can cut the log in half lengthwise, hollow it out and then glue it back together.
Chisel out the remaining wood in the hollow log using a wood chisel. Be careful not to break through to the other side of the log.
Drill an access hole in the front of the hollow log. It's easiest to use a medium size paddle bit to do this, but you can use a regular drill bit and just work it around the outside of the hole to enlarge it.
Make a roof and a floor with pieces of plywood or shingles. Secure them using galvanized nails. Drill a tiny hole in the front beneath the door to place a perch made with a twig or small stick.
Place an eye hook in the roof and hang the hollow-log birdhouse with heavy-duty fishing line.