Geography is important to Ray Davies. We meet for lunch in Hampstead in north London, at an Italian institution of a restaurant called Villa Bianca. Davies, now 69, grew up only a couple of miles away on the other side of the heath, in Muswell Hill. He lives even closer, in a terraced house in Highgate. His neighbourhood, he will say, was and is as crucial to his songs and to the music of the Kinks as Liverpool was to the Beatles. But then again there is north London, and north London. He's never felt comfortable in Hampstead, even less now that it is the preserve of bankers and lawyers, rather than publishers and actors. He lived here once, for a day, he recalls. Bought a flat, couldn't get to sleep because it didn't feel right, and moved out the next morning. "There's no pity here, never has been," he says. "I like places that have a bit of empathy."

He is fretting about why he suggested we meet here in the first place. He hasn't been to Villa Bianca for two years, and the last time was at the invitation of Alan Yentob (who was making a film about Davies's mercurial and often unsung gift and influence). He thinks it might be because it reminds him of his – and Frank Sinatra's – favourite restaurant in the world, Patsy's on 56th Street in Manhattan, "same layout, similar food, and only one door so you can't do a runner."

Davies is still pondering his choice of restaurant when the menus arrive. He doesn't really do lunch these days "except when I'm in hospital". He doesn't eat meat, he's avoiding cheese, he'll have a think about wine. He orders Dover sole off the bone. I order salmon and we agree to share an artichoke starter.

He immediately regrets this choice. He fears the sole will be too big – fears that multiply when a great flat fish is brought out for inspection – and that he will feel guilty for not finishing it. He's not sure about the artichoke.

"I once broke up with a girl and sent her home because she didn't know how to eat artichoke," he says, with half a smile. I promise to attempt to do the vegetable justice.

"I was 24," he says. "She was American, I shouldn't have been with her in the first place. She was a fan pretending to be a journalist. We were in Chelsea. She was wearing an evening dress and we were in this really smart Italian place on the Kings Road. I felt way out of my depth. She ordered artichoke, but she didn't know how to eat it. Neither did I, of course. I thought: I have to get out of here. She asked me why and I said, you don't know how to eat artichoke. She was clearly better off without me."

As our conversation moves on, in enjoyable fits and starts about cricket and Englishness, long-lost girlfriends and forgotten restaurants, the stations of the northern line, I realise Davies often talks like this, in vignettes that might be songs. His manner is slightly awkward, vagueness punctuated by sudden bursts of lyricism; he has a reputation for being glum but is engagingly animated, if only periodically. The occasion for our lunch is the re-release of his 1971 Kinks album Muswell Hillbillies, a period piece which paradoxically, like all of his music, stands up well to time. Before lunch I have had a look in the landmark London boozer, the Archway Tavern, marooned on a traffic island at the bottom of Dick Whittington's hill in Highgate, where the cover artwork is shot. It hasn't changed much. 'I liked the fact that when you came out you felt all at sea,' Davies recalls. 'I did a great drawing of that pub once; Brenda my old art school flatmate tells me she has it. But she is in Costa Rica, so I don't suppose I will see it.'

The record marked the continuation of a change in direction for the Kinks after their string of 60s pop hits – You Really Got Me, Waterloo Sunset, Sunny Afternoon and the rest. It was, Davies recalls, a return to roots, "an attempt to make north London country music". For infamously tortured contractual reasons the Kinks had been banned from performing in the States for the previous five years, a source of great frustration. The album was angry in a way that still sounds relevant: "got no privacy, got no liberty because the 20th-century people took them away from me," Davies laments on the opening track.

"I was mostly angry about the change in the area, Holloway, Islington, the way streets and communities were being demolished and destroyed, new roads driven through them," he says. "20th Century Man is written in that spirit. But I wanted it not to sound just angry but beautiful so I developed this way of singing in my chest. It's under-sung. It starts like a cowboy song just me strumming, and then the drums come in, and then you wait two minutes for my brother [Dave] to come in on the guitar, great surprising jangly chords, then finally the organ. It's like the band is being built. I love that song."

There is too, a sense of yearning in the album, which includes a Johnny Cash-like ballad about the women's prison, Holloway Jail, and blues about never going "anywhere south of Delaware, never saw a Kentucky moon". "I think a part of me always felt like I should have been brought up in Appalachia," Davies says. "People associate me with north London, but I always felt a bit surprised to have been born here somehow. We had this strange thing that because we were banned, there was literally no way of us engaging with America. There was no MTV, there were no international newspapers. We were making these pop songs and there was no way of getting them to America. I took the ban very personally."

Eventually Davies lived on and off in the States, a love affair which he has detailed in a recent memoir, and one that ended badly when, in 2004, he was shot in the leg after chasing a mugger who had stolen his friend's handbag. I wonder if he thinks about that event in terms of befores and afters…

"It's a constant," he says. "It has left me with a few mobility issues. It was pretty traumatic. I try not to think about it too much. And certainly not to talk about it." Writing about it was cathartic, he suggests. His book also includes the lyrics of 22 new songs; "though these days I often think the demos of them, the freshness is better than any record I could make."

Does that freshness keep coming for him as a songwriter? "Unless songs leave me," he says, "they haunt me for ever. I am haunted by the songs I have written but never recorded."

He picks at his big fish. I wonder if he ever writes in restaurants?

"In New York I used to eat alone a lot," he says. "I used to get the widower's banquette and I used to write a lot there. I can't do that here so much."

Many of his songs have that wonderful Waterloo Sunset quality of intimacy eavesdropped. Did he used to take notes of people's conversations?

"I did sometimes," he says. "I was fascinated by people in transit. Train stations, motorway service stations. I realised early on that you didn't have to go to Paris and starve in a garret to be an artist, you could do that just as easily with a piano in Muswell Hill."

He gives up on his sole, leans back. He tells me his hero, as an artist, was Studs Terkel, the indefatigable oral historian, whom he met once in Chicago. "I realised that what he did was what I had been trying to do in my music," he says. "I think at their best songs can be little time capsules of what it was like to live somewhere at a certain moment. I am more and more interested in film as well. I took three of my five surviving sisters to the seaside recently. I just left the camera running all the time, to try to capture them together in their natural habitat as it were … I really like verbatim documents. I want to hear every pause."

There is just such a pause now, as Davies readies himself to go. Before he leaves he returns to our theme of feeling at home. "You know, I lived in Surrey for a while," he says. "When my first marriage broke up my secretary who lived in Surrey suggested I lived down there because it would be an easier commute for her. I bought this house and immediately fired her. It was Cobham, I hated it. The best thing was my mum bought me three donkeys to keep the lawn down when I was on tour. One got run over and we buried it. When I left Surrey I put the others in a sanctuary but I kept looking after them, I used to go and talk to them. We only had the last one put down this year," he says. "I held him in my arms while he died, he was quite ancient …"

Not quite sure how to respond, I say: "I don't know how long donkeys live?"

"Oh," he says, "Donkey's years."

Muswell Hillbillies (Deluxe Edition) is out now on RCA. Americana: The Kinks, the Road and the Perfect Riff (Virgin, £18.99) by Ray Davies is out now