I too have cedar siding (NE Ohio) and get many downy woodpeckers trying to build nests in the siding.
I got some of that bright orange marking tape (like crime scene tape but bright orange..they sell it at lowes and HD. It's just fabric or vinyl or something; no adhesive) I took two pieces about 4 feet long, doubled em up, and stapled them high up on the siding to make streamers. I put two of these on their favorite side, and one on the other sides. The slightest breeze makes them dance around.
I've been through two nesting seasons now, and although I occasionally still hear a little drumming, I've not had any nest holes made since.
Very cheap to try. A little tacky looking perhaps, but hey, I live in the woods.
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