Generally I agree that retcons which change a major chunk of a character are a bad deal, even when the intention is noble.
Allan's sexuality is one of the exceptions for me. Saying he was gay fits within the framework of his history; it doesn't actually change anything; he would have still dated those women, he still would have gotten married (twice) and had Jen and Todd. He could have still very much been fond of those women and "loved" them...just not in a sexual way. Allan might as well be single for all the attention his love life has gotten over the last thirty years, so.....saying he's gay doesn't necessarily *change* anything; more like it *reveals* something Allan himself had buried deep down.
It adds dimension to his relationship with Molly, and it adds to his dynamic with Todd without actually removing or changing anything on the page. It's just Allan discovering a side of himself that, due to the era he lived and grew up in, he had to hide as deep as he could.
But I totally get not wanting the continuity changed. Most of the time I'm of the same mind.
I think "making our established characters more interesting and varied and representing a broader demographic than straight white males" is as specific a reason as is needed. I mean, DC can, should, and do create new characters meant to broaden representation, but that's only one option among many and if it's the only option DC uses then we'll have a really weird DCU where nobody was gay or black or female until the modern age.
If the goal is to say that some established, older characters were closeted, the Golden Age cast is a good place to start. They're safer choices than their Silver Age compatriots, the homophobia of their era helps rationalize why they're in the closet even in the present day, and the thin quality of story and character development of the Golden Age allows more wiggle room to inject changes like these between the lines.
There's better choices for a gay JSA member than Allan; some of them have even less of a dating history than Allan does, some of them didn't have kids, and everybody seems to think Johnny Thunder was gay in the first place. But Allan's also one of the highest profile JSA members, so his coming out of the closet carries a bigger impact. It seems like a valid balance to me; someone like the original Mid-Nite might have been a better choice, but Allan is still visible, active, and carries a moniker with pedigree, but changing his sexuality won't create as big a kerfuffle as it would with Hal or Kyle or John.