Be careful; hay molds quite easily, and that would kill your birds.
Cedar: DOES release toxins into the air, and especially into any water. Not good for MOST animals. Should never be used for small animal bedding, but retailers don't care...
My coop is small--a raised little Chinese piece-of-**** that I worked on to make better (it's the only thing that fits between the windows of my house, where I need it to be) with an attached "playpen" (a large iguana cage turned on it's side, plexiglass sided in winter, with a vented choroplast...
I'm in northern Ohio (cold, damp, sometimes below 0 F) I use sand, but I use a SweeterHeater plugged into a thermocube so that it turns on around freezing and off if it reaches 50. Roost also is longer than needed for the birds, and flat and wide with rounded edges, instead of round, to keep...