The hot pepper house is a house that appears in the episode "Unreal Estate."
The house looks like a hot pepper. It has two windows and a door that look similar to those of SpongeBob's pineapple. It appears to set the residents who are in the pepper on fire. In the theme song for the hot pepper house, SpongeBob comes out on fire and Hans sprays him with a fire extinguisher.
I can turn into a skyscraper!
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Squidward is showing SpongeBob new houses to live in and the pepper is second in the latter's house daydream. It first appears in SpongeBob's daydream. After seeing that the house will incinerate him, SpongeBob passes it on.