Except that's not the whole story.

The song was co-written by Victor Willis (the lead singer) and Jacques Morali (their producer). Originally, executive producer Henry Belolo was also credited, but his name was later removed after lawsuits.

Willis is straight (as far as I can tell publicly in any case) and has indeed claimed that the song is simply about the YMCA and has nothing to do with gay culture.

However, Morali is gay. He was essentially the founder of the group and has been quite explicit that the group was created to because he "[wanted to do something only for the gay market"](wanted to do something only for the gay market). The name "Village People" is a reference to Greenwich Village, a gay community.

So we have 2 writers credited. One of whom was the singer who was hired on and later left while the group continued in without him, who claims the song was not about gay people at all. The other was gay, was basically the founder, and has been explicit about how the whole project was intended to target gay people all along.

So I suppose every listener needs to judge for themselves. But my own conclusion is that it's 100% about gay culture, just like most of the rest of their catalog. I could only speculate as to why Willis wants to distance himself from that.

Maybe he never expected to become a gay icon and was never comfortable with it. Maybe he's trying to to make sure that the song appeals to the largest market possible for the sake of getting more royalties. Or maybe there's something else going on.