It's an incredible over simplification that ignores several hundred years of history, religion and global politics involving many countries from the HRE to France.
Well yeah there is that, was trying to show British as an identity means something completely different in NI to what it means over here more than anything else. (with long and complex reasons why)
To say that it openly annoys half the population simply isn't true and that's what part of the problem is, people just seem to think that the communities of NI are divided up the middle and are at constant loggerheads. There are plenty of people in NI regardless of which community they come from who are happy to get on with their lives and don't really care for the flag as long as they can live a peaceful life.
Well yes there is that, but why should one community be allowed to flag up their symbols more than the other? People are forced to take down their tri colours immediately after st patricks day where ever in the north you live when equivalent protestant symbols (union flags are one example) are left to fly for ages after an event (12th july is the key one as places are "decorated" after it for weeks into August).
The decision to change the flag flying policy reflects the need to finally start properly adhering to all the recommendations of the good friday agreement to work towards a proper peace. Plenty of people (who fall under the nationalist or not interested labels) are massively disillusioned by the peace process because unionism gets away with this nonsense and saying things like "oh why whinge its only a union flag" furthers this dissatisfaction with the peace process.