break; at the end of each case!

Actually, the problem is the if statement, more specifically the semi-colon:

if (numberOfBuildings > 0);

which is interpreted as

if (numberOfBuildings > 0)
; // ie - do nothing.

The rest of the code is always executed, as it's outside the if statement. I also agree that it needs braces enclosing the logic after the if statement, unless js doesn't require this?

Fixed code (including break;s):

var building1 : GameObject;
var building2 : GameObject;
var building3 : GameObject;
var randomIndent = 0;
var randomIndentLow = 3;
var randomIndentHigh = -3;
var numberOfBuildings = 4;
var buildingNumber = 0;
var zchange = 10;

function Update () 
{
if (numberOfBuildings > 0)
{
buildingNumber = Random.Range (1,3);
randomIndent = Random.Range (randomIndentLow, randomIndentHigh);

switch  (buildingNumber) 
{
case (1) :
Instantiate (building1, transform.position + Vector3(randomIndent,0,zchange), transform.rotation);
numberOfBuildings--;
zchange +=10;
break;
case (2) :
Instantiate (building2, transform.position + Vector3(randomIndent,0,zchange), transform.rotation);
numberOfBuildings--;
zchange +=10;
break;
case (3) :
Instantiate (building3, transform.position + Vector3(randomIndent,0,zchange), transform.rotation);
numberOfBuildings--;
zchange +=10;
break;
}
}
}

Your problem is that you need to braces for your if statment.

if (numberOfBuildings > 0)
{
blah...blah....blah
}